Does a Change in Ownership Affect CA Property Taxes?

California Change in Property Ownership

California Change in Property Ownership

Californians who make it their business to know – now understand that triggering property tax reassessment to “a new Base Year Value” as a result of new construction to a home, or a complete change in ownership – which makes it virtually impossible to establish  a low property tax base; and results in a yearly tax rate that increases abruptly to  current or “fair market” rates.

Translation in everyday language – you pay much higher property taxes every year. For example, the different between $600 per year and $9,000 per year. Significantly higher property taxes.

Every County Tax Assessor in California, in all fifty-eight counties, records and reviews every single property deed in every county, to figure out which homes and various other real properties require reappraisal, and which do not. The Tax Assessors also determine ownership changes with other investigative tools such as such as kept records from homeowner self-reporting, or from records of building permits; from newspaper files; or field inspections.

When a County Tax Assessor has determined that a property has changed ownership, Proposition 13 stipulates that the County Tax Assessor must reassess that property to its current (i.e., fair market) tax rate, as per the date of change of ownership.

Because property taxes in California are based on a property’s assessed value – at the time of acquisition – the property taxes will be increased if the current market rate is higher than the original assessed Prop 13 base year value adjustment. Therefore – if the current market tax rate is lesser than the previous adjusted base year value assessment, then taxes on that property will go down. Which is what everyone wants.

It is important to note, however, that a portion of ownership of that property may be reappraised. Let’s say that 50% of a home is transferred under Proposition 13, and the changes that the Tax Assessor is going to reassess is 50% of the home at the current market rate, as per the transfer date, so 50% will be deducted from the base year value, under Proposition 13 property tax relief… 

Typically, when someone buys a home, the home goes through a “change in ownership” and 100% of the home is reassessed at full current market value.   Even if the outcome of transferring real estate is a change in ownership, there are a number of exclusions from paying current tax rates – and so certain homes or other real estate will often not be be reappraised under these sorts of home transfers.

If a property owner files the proper claim, an exclusion from paying updated current property taxes will kick in as long the owner’s property, or portions of this property, are correctly excluded from reassessment.

The best way to cover changes in ownership that are excluded from automatic reassessment, or reassessment by claim; is to enlist the help of a tax attorney, a property tax consultant, or a trust lender who specializes in establishing a low property tax base for heirs upon inheriting a home from a parent.

Frequently, this will assist beneficiaries in buying out inherited property shares from co-beneficiaries through a loan to an irrevocable trust, which realtors and property tax specialists call a transfer of property between siblings or a sibling-to-sibling property transfer – working in conjunction with a California Proposition 19  parent to child property tax transfer on an inherited home – a parent-to-child exclusion (from property tax reassessment at full, current market rates), to establish a low property tax base.  

Naturally, this line of property tax relief, based on a parent’s property  also includes the ability to transfer property taxes when inheriting property taxes from a parent. Under these tax breaks, a property tax transfer like this can help heirs keep parents’ property taxes basically forever, based on a parent-child transfer; or a parent to child exclusion from reassessment – to legally avoid property tax reassessment.

You can always consult your Tax Assessor, however it is generally in the Tax Assessor’s best interest to charge you the maximum amount possible. A property tax consultant or trust lender, on the other hand, is motivated to save you money on taxes, not see you spend more.

Understanding New Property Tax Relief Law in California

California Property Tax Transfer Law

California Property Tax Transfer Law

Using Reassessment to Your Advantage

Have you considered that property reassessment can sometimes work in your favor? For example, if property values drop. While we would prefer to see the value of our house increase, at least in a down market as our property value goes down – and so do property taxes. 

We’ll always take the point of view that property taxes should be lower. So if our property value drops, future increases would not be limited to Proposition 13’s popular 2% maximum increase every year. Yet if we transfer the property to someone else and regrettably trigger property reassessment, we can reset the property tax basis and future increases to the lower value.

If we find ourselves in that position with a taxable estate, we can think about transferring our property out of the estate. This will reset the property tax basis to a lower value – potentially reducing estate taxes. It’s certainly worth thinking about. Owning our own home is the classic California dream… The classic American dream. So being able to pass along that investment usually makes a great deal of sense to most of us.

Proposition 19 Replacing Previous Property Tax Benefits

As most Californians know by now, on Nov 3, 2020, CA voters approved Proposition 19 – a constitutional amendment verbosely titled the “Home Protection for Seniors, Severely Disabled, Families and Victims of Wildfire or Natural Disasters Act.”

The benefits are relatively simple and straight forward… With Prop 19 more or less replacing and continuing the Proposition 58 parent-to-child exclusion from paying current property tax rates; voted into law in 1986. With the right to keep parents property taxes on a property tax transfer, when inheriting property taxes… taking advantage of an inexpensive property tax transfer, in other words a parent-to-child property tax transfer measure called a parent-child exclusion.  Along with Proposition 193, an amendment passed by voters in 1996, allowing grandparent-to-grandchild transfer exclusions from current property tax reassessment.

Proposition 19 also replaced and continues tax breaks from Proposition 60 (passed in 1986) and Proposition 90 (voted into law in 1988) – both property tax measures enabling home transfers by seniors over age 55 – as well as replacing and continuing Proposition 110 (voted into law in 1990), as a tax measure enabling an exclusion from property reassessment for severely disabled residents.

To be clear, Proposition 19 enables residents to an inexpensive property tax transfer – to inherit family properties and keep a low property tax base on their parent’s home that they are able to move into as their primary residence. This new property tax relief also lets homeowners who are over age 55, extremely disabled, or victims of a wildfire or governor confirmed natural disaster to transfer the assessed value of their primary home to a newly purchased or newly constructed replacement primary residence up to three times in a lifetime.

With Proposition 19 taking over property tax breaks from the wildly popular CA Proposition 58, it bears repeating that the parent-child exclusion and inexpensive property tax transfer can be taken advantage of only when an heir inherits a home from a parent that was using that same property as a primary residence, not a vacation home – with an entire year to comfortably move into that parental home, as a primary residence.

New Property Tax Relief Benefits for Californians

However, homeowners also have the ability to file for a “homeowner’s exemption” as long as the home in question has been the principal residence of the owner as of Jan 1 of that tax year. A new owner will automatically receive an exemption claim form in the mail and there is no cost to file. To receive 100% of this $7,000 exemption a new property owner has to file with the local County Tax Assessor by Feb 15 of that year.

As most Californians know by now, we can’t take advantage of the parent-to-child exclusion if our inherited house is going to be used as a vacation home, rented out to tourists, rather than a primary residence. Fortunately, if the home is inherited by numerous children of a parent, only one heir needs to reside there to take advantage of an – the exclusion.

Moreover, a parent can shelter $1,000,000 of increased value from reassessment. Any appreciation above that will be added to the property tax assessed. In other words, if a primary residence is assessed today at $500,000 however is valued at $1,500,000, an heir inheriting the residence as a primary residence will keep the same property tax assessed value of $500,000. Fortunately for families in the agriculture business, this new limitation also impacts family farms.

These new property tax breaks applied to any transfer of California real estate after Feb 15, 2021, as a gift or an inheritance at death. They also apply to an irrevocable trust (such as a Qualified Personal Residence Trust or a trust created for your benefit by a predeceased spouse) that owns California real property and that will pass to children in the future.

Moreover, it’s fortunate mainly for middle class, upper middle class, and working families that a large loan to an irrevocable trust can still also be used by beneficiaries who wish to keep a parental home they’re inheriting at their parents’ low property tax base, when taking advantage of Proposition 19 (formerly the popular Proposition 58 tax break) to buyout co-beneficiaries, also referred to as buying out sibling property shares – looking to sell their inherited share of the same property, a – typically at a much higher sale price than an outside buyer would offer. The 6% realtor commission, attorney fees, closing costs, cosmetic improvements to please buyers, and other ancillary charges – all disappear when a trust loan from a trust lender furnishes the funding for a sibling buyout.

When you have a reliable trust lender at your side to make buying out sibling co-beneficiaries possible – it pays to keep it in the family.

What is The Role of a CA Property Tax Consultant?

California Property Tax Consultant

The Role of a California Property Tax Consultant

What Property Tax Consultants Provide

This article provides an overview on property tax consulting and the benefits that come with enlisting the help of a property tax consultant with expertise in California property tax relief, among other key issues.

To begin with, County Property Tax Assessors – as every homeowner or relevant property owner, new beneficiary and estate heir in California knows – are solely responsible for implementing property tax assessments in their county. The County Assessor is also who one has to deal with when negotiating or submitting a property tax appeal, or filing various related paperwork; or to confirm deadline dates for filings.

However, we find that most homeowners and property owning landlords wind up enlisting the help of a tax appeal firm, or a professional property tax consultant to mitigate what they believe are property tax overcharges, to minimize their long-term property tax burden on a residence or an inherited home.

As many Californians know, property tax consultants frequently handle Tax Assessor negotiations or litigation issues for homeowners and business property owners; and often refer homeowners and beneficiaries to a trust lender, to take advantage of an irrevocable trust loan, while keeping a parents low property tax base.

And as many residents are aware, a loan to an irrevocable trust also works jointly with a parent-to-child exclusion from Proposition 19 (i.e., formerly Proposition 58) and as we mentioned a moment ago keeping a low property tax base while retaining an inherited home from a parent… Also being able to buyout inherited property shares from a co-beneficiary intent on selling their inherited property – for far more cash than an outside buyer would offer.  So in a sense, property tax consultants are aiding both estate heirs and trust beneficiaries looking to buyout siblings’ inherited property, as well as the siblings, or co-beneficiaries, interested in selling out. 

As most Californians that own property know, property tax relief  under Proposition 19 mainly revolves around  the property tax transfer measure, more specifically the parent-child transfer and  protected right to transfer parents property taxes when inheriting property and inheriting property taxes, generally with the ability to keep parents property taxes basically for as long as one resides in a primary residence – initiated by the parent-to-child exclusion.

CA Property Tax Consultants: Popular Categories

There are different types of property tax consulting services. Some consultants are experienced appraisers, with expertise in both residential and non-residential corporate real property evaluation. Some companies lack the expertise to some up with their own property tax valuation assessments on their own, and so hire property tax valuation consultants to produce customized property tax assessments for them.

On the other hand, there are “strategy consultants” who can negotiate property tax appeals, help with tax reduction planning, and handle payments for property owners. There are also property tax consultants that concentrate on helping property owners with compliance issues, assembling data and preparing documents to file with the County Assessor.

Michael Wyatt Consulting: General Practice CA Property Tax Consultants

Many property tax consultants offer a combination of services. This is generally the best type of property tax consultant to work with, as they are a lot less limited, in terms of what they can offer you and your family. It’s often helpful to look closely at an actual property tax consultant in California to get a real-life sense of what a professional service like this can actually offer.

For example, let’s take a look at the Michael Wyatt Consulting firm in Corona, California. Since 1978, this boutique firm has specialized in commercial and real estate appraisal, as well as property taxes and property tax relief, custom property research, real estate finance, real estate law, and real estate market analysis, site planning, and entitlements.

Setting them aside from many property tax consultants in California, this particular firm, and most generalist property tax consulting firms like them, will review your real property values every year, getting a fresh look at the status of whatever specific issues are in focus or at stake. If there are proposed property transactions in the works, a reliable property tax consultant will look at that transaction from every angle, to avoid property tax assessment.

Moreover, an on-staff general property tax consultant will always take time to respond to a client’s various needs, such as researching an issue that requires deeper investigation to ensure that all “t’s” are crossed and all “i’s” are dotted; and will always look carefully at any real estate deeds or other related items to make sure all data and numbers are completely accurate before committing final tallies and results to writing, and/or filing with the Tax Assessor.

Generalist tax consultants also tend to stand in as a “middle-man” between you, the property owner, and the Tax Assessor, coordinating your accepted fee payment – or your property tax appeal – and will complete all communications and filings with the County Tax Assessor’s office… and/or any other required government entity or agency.

Like all established, seasoned property tax consultants, the Michael Wyatt Consulting firm provides property owning clients with the knowledge they’ll need to make informed, correct real estate and/or property tax decisions – in order to meet all financial and residency challenges head on; in a timely and cost-effective manner.

Communicating With County Tax Assessors Throughout California

Additional benefits homeowners receive from working with property tax consultants include the ability to make good use of an experienced consultant’s in-depth knowledge of valuation principles, negotiating dispassionately and successfully with Tax Assessors concerning property tax breaks such as the Proposition 19 (formerly Prop 58) parent-child exclusion or assess and apply Proposition 19 tax relief measures that come with being over age 55, being severely disabled, or from owning a primary residence that was destroyed by a natural disaster like a flood or an earthquake, or a forest-fire.

Both homeowners and companies look to property tax consultants to help them put together a customized property tax relief strategy, based on the location of their home or properties’ and to present that plan effectively to the local County Tax Assessor.

A competent property tax consultant should be able to provide expertise on a transfer of a primary residence’s property tax base value to a replacement residence of any value, or to expand tax benefits for the transfer of a family farm — anywhere in California, which calls for new benefits and is highly complex, requiring rather specific expertise.

Awareness of Big-Picture Views and Legislative Issues

It is part of a property tax consultant’s job to lower the value of a property for a homeowner or a business, and to communicate this properly and effectively to a Tax Assessor, and to research challenging issues if necessary, and comprehend different industry categories whenever required.

Not only must a property tax consultant be knowledgeable about property taxes and property tax relief – the property tax consultant must also maintain a big-picture view of state or county legislation that may be looming in the future, and that may affect real estate in your particular county or region – or even possibly in the state of California, if statewide issues happen to be at stake.

Property tax consultants are occasionally also estate attorneys, and typically are compliant with Uniform Standards of Professional Appraisal Practice (USPAP) standards; and maintain a good reputation you can check on in the property tax industry associations and non-profit organizations.

Popular Reasons Why California Beneficiaries Get a Trust Loan

California Trust Loans

California Trust Loans

Typically, beneficiaries who are seeking a mid to high six-figure or low seven-figure loan to an irrevocable trust are looking to accomplish an important outcome that is generally not possible with other types of financing such as inheritance advance assignments, credit union financing or personal bank loans – as reviewed below…

What Type of Trust Lender do You Want to Work With?

Families buying out sibling property shares while keeping your inherited home at a low Proposition 13 tax base typically enlist the help of an experienced California trust lender that is self-funded. Beneficiaries generally want a self-funded lender as they deliver funding at a faster rate than institutional lenders, such as five to seven days, versus three to four weeks. They also offer terms that are more flexible than an institutional lender such as Bank of America or Wells Fargo. Their compliance requirements for both commercial and residential property owners are also less restrictive than traditional lenders.

Self-funded trust lenders seldom charge up-front fees, they do not require borrowers to pay advance interest on their trust loan; and there is never a “due-on-sale” clause that requires the mortgage to be repaid in full when the property is sold. Lastly, beneficiaries like the fact that this type of firm does not impose an “alienation clause”… in the event of a property transfer, insisting that the borrower has to pay back the mortgage in full before the borrower can transfer the property to another person. Estate and trust attorneys, or property tax consultants will always advise beneficiary clients to avoid these types of restrictive and costly requirements.

Buying Out Property Shares Inherited By Co-Beneficiaries

Generally this option revolves around a common family or sibling conflict that typically has beneficiaries insisting on selling their inherited property shares, while other beneficiaries are looking to keep the family homes, and are enlisting the help of a trust lender to buyout siblings who are determined to sell.

This method of funding provides the beneficiaries looking to sell with a good deal more money than a realtor will get them, with more cash from a trust loan and trust lender than an outside buyer would come up with… Avoiding an expensive, standard 6% realtor commission, avoiding closing costs, legal costs, and processing fees.

This type of family conflict is stressful, however the trust loan process provides a win-win solution for all concerned – keeping property at a low base rate for those who are retaining their parent’s home, and putting a lot more cash in the pocket, as far as beneficiaries who are intent on selling their inherited property shares are concerned.  The trust lender funds the trust and provides “equalized distribution” so every sibling who is selling their shares receives an equal amount.

Avoiding Property Tax Reassessment

Beneficiaries looking to keep their inherited family home, while buying out siblings that are looking to sell off their inherited property shares with personal funds, will discover quickly enough that this is not a viable option. Siblings who wish to keep their family home must avoid triggering reassessment, hence using a loan to an irrevocable trust is the most beneficial option, keeping property at a low base rate, or walking off with a lot more cash from selling inherited property shares. Depending which side of the fence you’re on.

As a CA homeowner – how do you ensure, as with a parent-child transfer, that you’re not paying more property tax than you should?  New homeowners must take the right steps in the beginning to keep the low property tax base their parents had, avoiding property tax reassessment at high current rates.  Without trust loan funding, the transaction would be viewed as a “sibling-to-sibling transfer” and thus would not avoid property reassessment. 

A beneficiary keeping the inherited home winds up saving on average $6,200 in yearly property taxes.  Borrowing against an irrevocable trust ensures that the process moves directly through the estate and locks in a low property tax rate. Closely related property tax benefits – that beneficiaries and new homeowners need  to get extremely familiar with – stem from Proposition 13 as well as Proposition 58;  and have morphed rapidly into Proposition 19…  

This all begins with basic property tax transfer… meaning the ability to keep parents property taxes, keeping property at a low base rate through the parent-child transfer and parent-to-child exclusion.  Beneficiaries, and believe it or not their estate attorney, absolutely have to know all about their right to transfer parents property taxes when inheriting parents property and inheriting property taxes from Mom or Dad…

Paying Trust Expenses

For beneficiaries, when a trustee passes away, there is often not enough cash or “liquidity” in an estate or in a trust to pay debts an initial trustee owed, such as attorney fees, medical bills, mortgage and personal loan debt, and other financial obligations. A trust loan can help resolve these debts.

Renting or Selling Inherited Property

If heirs or beneficiaries decide they’d like to rent out an inherited property, there are often maintenance costs and repairs to be considered. Especially when dealing with an inherited homes, age is an issue… hence there are often roof issues, boiler problems, pipes to be replaces, and so on. Before one is able to put an older home on the market to rent or to sell.

Irrevocable trust loans and Proposition 19 property tax exclusion, working in conjunction with each other,  insures that beneficiaries and new homeowners can get these fairly complicated tasks  accomplished in a relatively easy, stress-free and inexpensive manner.