Updated Aug 18, 2018

Go deeper: People are noticing California’s huge property tax loophole

An upscale home in California

An upscale home in California. Photo: Mardis Coers/Getty Images

Californians are getting a tax break on property thanks to a state law known as Proposition 13 which caps property taxes at just 1% of the home's value, based on the year the house was purchased, reports the Los Angeles Times.

Why it matters: Proposition 13, a policy unique to California, was passed in 1978 in an effort to limit property tax increases to support residents as housing prices soared. Eight years later, the state passed an additional tax break that extends such privileges to inherited property. However, several Californians have put their homes up for rent, charging thousands of dollars per month, and covering annual property tax fees within weeks.

The big picture: A study by the Times shows that property owners largely aren't living in them. 63% of those who inherited such properties in Los Angeles county alone rented the homes out last year.

  • Actors Jeff and Beau Bridges, along with their sister, own a four-bedroom home in Malibu they rent out for nearly $16,000 a month with an annual property tax bill of less than half that.
  • Actor Peter DeLuise inherited a three-story home from his father where he charges $24,000 per month in rent. A single month covers his property tax bill in three weeks, the Times reports.

The other side: "The tax break has deprived school districts, cities and counties of billions of dollars in revenue," writes the Times.

  • A report from the state's non-partisan Legislative Analyst Office estimates the state has been skimped on about $1.5 billion in revenue, totaling 2.5% of the state's property tax value.

Be smart: Despite significant losses for the state and benefits for property-owning Californians, Proposition 13 won't go away anytime soon. Nearly two-thirds of the state still supports the initiative.

Editor's note: This story has been corrected to reflect the appropriate California laws.

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