Posted by & filed under Proposition 15, taxes.


The repercussions could make a big difference for the state’s businesses and residents.


What a wild year it’s been. COVID-19, wildfires, and political kerfuffles were just the start. Now, with election day fast approaching, we have a lot to consider—not the least of which is your choice for the next president of the United States. In California, we have 12 propositions on our ballot, and one—Proposition 15—threatens to rollback a 42-year-old California Constitutional amendment.


Exploring Proposition 15

At its essence, Proposition 15 will impose steep property taxes on business, which will, in turn, raise billions of dollars for schools and local governments. On the surface, that sounds like a great payoff. After all, businesses make lots of money, right? What’s the negative of taxing them more?


If California’s Proposition 15 passes, though, it will be one of the biggest tax hikes in the state’s history. More than that, if voters choose to push the measure through, it will change property tax laws that have been in place since 1978. That’s because Proposition 15 is closely related to Proposition 13, “which established the concepts of a base year value for property tax assessments and limitations on the tax rate and assessment increase for real property.”


Because of those limitations established 42 years ago, business owners pay property taxes based on the original price they paid for the property (plus inflation adjustments), which especially here in California, is usually a lot less than its current value. By passing this legislation, property taxes for many businesses will skyrocket.


Estimates are that a “yes” vote on Proposition 15 will result in $6.5 to $11.5 billion (yes, with a B) to be split between municipalities and schools, with schools appearing to be last in line.


Only businesses would be directly affected by the change. Homeowners will not see an increase in property tax, and agricultural property will be unaffected.


The Tie to Proposition 13

California is often a leader in national policy, and Prop. 13 was no exception. Since its passing, other states have taken steps to limit how quickly property values can be reassessed. Currently, commercial and industrial property tax is based on the original purchase price with annual increases capped at 2% or equal to the rate of inflation, whichever is lower.


If Proposition 15 were to pass, it would essentially reverse Proposition 13.


Why a Yes Vote on Prop. 15 Is a Bad Thing

While there is no indication that residential property taxes would be affected, even if Proposition 15 were to pass, that doesn’t mean that many residents of California won’t feel the brunt of such a new law, should it take effect.


Consider that, if businesses have to pay higher taxes, they need to make up that loss elsewhere (most leases pass the property tax burden to the tenant). That means price increases for products and services statewide, cut employee hours, or even layoffs. Some businesses will close or leave California.


In addition to real estate taxes, Prop 15 also increases the taxes on business non-real property, equipment, machinery, improvements and more.


While a yes vote on Proposition 15 would be a detriment to the state’s economy at any time, it could be especially devastating in 2020, when we are already in one of the worst economic situations we’ve seen in generations. Californians simply can’t afford to weather this kind of sweeping increase in commercial property taxes.


What Should I Do Now?   

You need to have a knowledgeable estate planning attorney on your team so you can make wise choices about your money—now and after you’re gone.  The Law Offices of Joel A Harris are more than prepared to provide you with legal counsel pertaining to your planning, execution, or, and any other legal concerns or questions you may have. The Law Offices of Joel A Harris, located in Concord, Walnut Creek, and Antioch are available to help you to the best of their abilities. Joel Harris is an attorney with over 25 years of experience and is extremely familiar with this process. If you are not sure how to begin, or you just want a few questions answered, feel free to visit us online, in person or call us by phone at (925) 757-4605. 

Posted by & filed under Asset Protection, Community Property Agreement, Retirement Planning.


Did you know that many real estate professionals who handle the titling of real property assets for same-sex couples many times are ignorant of titling rules for those couples? 

This is a subset of the law in California that same-sex couples must be aware of even if they’ve been cohabitating for many years.  Married same-sex couples who have been together a long time, but only recently legally married, will not have community property and will lose the significant tax benefits on the death of the first spouse unless they make certain decisions to protect their community property assets.

Same-Sex Couples & Community Property Rights


When you are planning your estate you might not think about how your living arrangements may affect it.  For example, if you have lived with someone for a long time and have had a lifetime partnership with them, sharing the expenses and purchasing a home together, you would think that would be the same as a normal married couple. 

However, it’s actually not.  There are different laws that apply for people that have had a long term relationship but are not actually married.  This also, sadly, is how it is for many of our married gay couples.

When you buy a house together you think of it as community property.  Community property means that it is both yours equally.  Community property is everything that is purchased during the marriage. However, if you waited a long time to be married, then the rules are different. 

Because the marriage of gay couples wasn’t even possible until recently under California law, there are many same-sex couples finding out that they, in fact, don’t have the rights they thought they had.  We are seeing more and more of this costly mistake and want to make people aware.  There is a document that you can sign that will make the property community called a “community property agreement”.  This is something that you need to discuss with your estate planning attorney.

Why You Need a Community Property Agreement


So, let’s try to break this down a bit and hopefully help better explain it.  Let’s say you own a rental property with your partner that is now worth $1,000,000.  You both agree to sell the property.  You purchased the property many years prior for $200K, and so upon sale of the property you would have to pay capital gains tax on $800K. (The cost basis is $200,000.  If this was depreciated rental property, the cost basis would be as low as zero.)  When someone dies, their share gets a 100% stepped-up basis.  If the property is jointly owned, such as joint tenancy or tenants in common, 1/2 the property would get a stepped-up basis of $500,000.

But – and this is the important part – for community property, the surviving spouse gets a 100% step-up on the entire property, so this property would be stepped up to $1,000,000.  This means it can (1) be sold without capital gains tax or (2) be depreciated all over again, meaning a huge annual income tax deduction for the surviving spouse.

The concern is that same-sex couples who have been together for many years but only just recently married, will not have their assets properly designated as community property.  This can be fixed by getting a signed community property agreement.

Clearing Up The Confusion of Step-Up Rules


There are a lot of confusing rules about the stepped-up basis.  However, you can have all of your questions answered by speaking with an estate planning attorney who is an expert about these rules. 

Take the time to do some research on this, and if you find it difficult to understand make an appointment with The Law Offices of Joel A Harris.  Don’t leave a tax mess for your spouse or long term partner.

The Law Offices of Joel A Harris are more than prepared to provide you with legal counsel. Joel Harris is an attorney with 30 years of experience and is extremely familiar with how the law affects same-sex couples and their rights. If you are not sure how to begin, or you just want some help navigating the ins and outs of protecting your retirement and estate, feel free to visit us online, in person or call us by phone at (925) 757-4605.

Posted by & filed under 2020 Changes, Asset Protection, Estate planning.

2020 Changes to 401k, SEP and IRA Contribution Limits

How much money can you save for your retirement in 2020? The I.R.S. just increased the annual contribution limits on IRAs, 401(k)s, and other widely used retirement plan accounts for 2020, so we thought it would be a good idea to offer a quick look at some notable changes that you should know for 2020. In 2018, 13% of employees with retirement plans at work saved the maximum amount of $18,500-$24,500. 15% of the employees that were offered the catch-up plan over the age of 50 took advantage of that offer. The announcement by the I.R.S. means that the numbers listed can go up, and if you value your retirement, you should be a part of it!  

Contribution Limit Changes In 2020

    In any type of IRA in 2020, you can put up to $6,000 for your retirement. If you are older than 50 years old anytime in 2020, the limit has been increased to $7,000. Employees that participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan will face a $500 increase in the limit of contributions. In 2019, the contribution limit was $19,000, in 2020, there was a boost to $19,500. The catch-up contribution limit for participating employees over 50 years also increased by $500, from $6,000 to $6,500. (This is the first increase in the contribution limits since 2015 when the limit rose to $6,000.) 

SEP IRAs and Solo 401(k)s

Are you self-employed, or do you own a small business? You may have a SEP IRA or a solo 401(k), which allows you to make both an employer and employee contribution. The limit on total SEP IRA and solo 401(k) contributions rises $1,000 in 2020, reaching $57,000. This amount is based on how much employers can contribute as a percentage of their employee’s salary. The compensation limit that is used in the savings calculation also increases in 2020 by $500. In 2019, the limit was $280,000, in 2020 however, the limit boosts to $285,000. 

SIMPLE IRA Limit Changes In 2020

    If you have a SIMPLE retirement account, also known as the Savings Incentive Match Plan for Employees Individual Retirement Account, limitations also have a $500 boost from 2019’s $13,000 to $13,500. But the SIMPLE catch-up plan is still the same as the 2019 limit of $3,000. 

Changes in Phase-Out Ranges in 2020

Are you a single taxpayer covered by a workplace retirement plan? Your phase-out range is $65,000 to $75,000, an increase from $64,000 to $74,000.

Are you married, filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan? Your phase-out range is $104,000 to $124,000. That’s an increase from past years of $103,000 to $123,000. 

If you are a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

If you are an IRA contributor that is not covered by a workplace retirement place and is married to someone who is covered by one, the deduction is phased out if the couple’s income is between $196,000 and $206,000, an increase from $193,000 and $203,000.

For taxpayers making contributions to a Roth IRA’s income phase-out is $124,000 to $139,000 for singles and heads of households. That’s an increase from $122,000 to $137,000. 

If you are a married couple filing jointly, the income phase-out range is $196,000 to $206,000, an increase from $193,000 to $203,000.

What Should I Do Now?   

Planning for your retirement can be a daunting task, and you may still have some remaining questions. The Law Offices of Joel A Harris are more than prepared to provide you with legal counsel pertaining to your planning, execution, or, and any other legal concerns or questions you may have. The Law Offices of Joel A Harris, located in Concord, Walnut Creek, and Antioch are available to help you to the best of their abilities. Joel Harris is an attorney with 30 years of experience and is extremely familiar with this process. If you are not sure how to begin, or you just want some help navigating the ins and outs of protecting your retirement and estate, feel free to visit us online, in person or call us by phone at (925) 757-4605. 

Sources

  1. irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits 
  2. irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500 
  3. forbes.com/sites/ashleaebeling/2019/11/06/irs-announces-higher-2020-retirement-plan-contribution-limits-for-401ks-and-more/
  4. cnbc.com/2019/06/03/these-are-the-new-hsa-limits-for-2020.html