California Property Taxes

Using reassessment to your advantage

With all the talk in 2022 in California about losing money on property taxes from property reassessment – or accidentally triggering reassessment – we should all bear in mind that reassessment can also work in our favor, if property value drops. Of course, while you would rather see the value of your home increase, if there is a down-market and property value drops…. our property tax bill should drop as well.

Property tax consultants tell us if we transfer our property and trigger reassessment, we can reset the property tax basis and future increases to the lower value. If you have a taxable estate, you might want to may consider transferring property out of our estate. This will not only reset the property tax basis to a lower value, but also potentially reduce estate tax.

On the other hand, many homeowners favor a parent-child transfer to avoid property tax reassessment, as opposed to, for example, using an LLC approach or other lesser known processes – as long as the transferred home is, initially, a primary family residence and the heir receiving the property is moving in as a primary residence, plus the exclusion is claimed inside 12 months from change in ownership… remaining aware of the fact that the first $1,000,000 is not reassessed.

Buying Out Siblings’ Inherited Property With a Trust Loan

We also have to remember in California in 2022 that, working in conjunction with Proposition 19, a loan to an irrevocable trust allows a beneficiary to buyout inherited property shares from co-beneficiaries looking to sell their inherited property… thereby speeding up the trust distribution process.

A trust loan also generates a much higher profit for the beneficiaries selling their inherited property shares, by avoiding expensive home prepping for a sale, and avoiding a 6% realtor commission, legal fees, and other pricey closing costs. All in all, avoiding property reassessment and higher costs for all concerned.

When a trust loan is used to process trust distribution to co-beneficiaries, each beneficiary or sibling gets an additional $15,000 in distribution as opposed to selling the home to a conventional buyer. The family member keeping a family home also saves money – generally $6,200 or more per year in property tax savings by avoiding property tax reassessment on an inherited property.

That’s why many families inheriting a home from parents go to a reliable trust lender to be able to take full advantage of Proposition 19 tax benefits.  Beneficiaries and homeowners continue to take advantage of  Proposition 19 and Proposition 13 and basic property tax transfer and related tax breaks… keeping a low property tax base when inheriting a home – inheriting property taxes at a low rate from parents; the right to keep parents property taxes,  naturally, the parent-to-child transfer and parent-to-child exclusion, and as we have discussed here – buying a siblings’ share of inherited property or buying out numerous co-beneficiaries.  When you put it all together, saving a good deal of money on property taxes from the process.