Tag Archives: Parental property transfer

Does a Change in Ownership Affect CA Property Taxes?

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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.

How Will Proposition 19 Impact Middle Class Families in California?

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How Will Proposition 19 Impact Middle Class Families in California

How Will Proposition 19 Impact Families in California

Before Proposition 19 existed, parents in California could transfer their primary residence and $1,000,000 per parent of other property to their children without triggering a tax reassessment of  those properties. After Feb. 15, 2021 that exemption, the parent-child exclusion,  was watered down, limiting access to this time-honored exclusion from current property tax rates to moving into an inherited home only as a primary residence;  and limiting a beneficiary’s ability to go about avoiding property tax reassessment in CA to a strict 12-month move-in period. 

As long as this deadline is kept, heirs will be avoiding property tax reassessment in CA without issue.  An heir’s ability to transfer parents property taxes when inheriting property taxes, and the right to keep parents property taxes on any property tax transfer from a parent, as Proposition 19 parent to child transfer, or Prop 19 parent to child exclusion, is guaranteed.  As is the right for a beneficiary to get a trust loan from a trust lender to implement a  transfer of property between siblings… In other words, you can lock in a low Prop 13 property tax base plus buyout co- beneficiaries if they want to sell their inherited property.  Amen!  And in the midst of the Coronavirus crisis, with rampant unemployment and under-employment… a 6-figure trust loan could be a life-saver.

After Feb. 16, a transfer of a principal residence by a parent to a child (heir) is only exempt if the parent was using the property as their principal, or primary, residence; and the heir is also residing in the inherited home as a primary, principal residence following the parental property transfer.  If that is not a problem, we’ll most likely see an equivalent number of middle class and blue collar families avoiding property tax reassessment in CA as before Prop 19 became law. 

Even if only half as many people as before take advantage of the Prop 19 parent-child exclusion, 50% is still a pretty healthy number.  No other transfers of property between parents and children will be exempt from reassessment, with the exception of a family farm, which is currently defined but as “farmed land” whether the property includes a residence or not. 

Transfers that are excluded from property tax reassessment do have limitations, however.  The exclusion applies only as far as the assessed value at the time of transfer plus $1,000,000. Any property beyond that value would be reassessed at a current market tax value.

Housingwire.com recently wrote: “Prop 19 will deliver needed funding for cities, counties, and school districts when they need it most. It will generate hundreds of millions in annual revenue for fire protection, affordable housing, homeless programs, safe drinking water, and other local services and dedicated revenue for fire districts in rural and urban communities to fix inequities that threaten life-saving response times to wildfires and medical emergencies.”

So how will Proposition 19 impact the middle class, working family  housing market in California, admittedly an expensive state to live in.  Although certain components in California will benefit from a new property tax revenue stream, regular middle class and blue collar families residing in inherited homes may still find it difficult keeping up with the rising costs and expensive lifestyle of California. Yet Prop 58 can still help. Proposition 58 Property Tax Breaks are still in place, despite restrictions.  Providing you intend to occupy an inherited home as your primary residence you can still save as much as $10,000 annually in property tax savings.  

President of One80Reality, Nick Solis, tells us:  ““We are definitely  going to see property taxes rise on inherited homes. California is one of those places where blue collar workers usually pass down homes to kids and other family members. Those homes are now going to be taxed at a much higher rate. It will force their hands to sell, because the properties will be more expensive to retain.”

Mr. Solis said he’s not worried about selling homes, but a new demographic of home buyers is going to emerge. He tells us: “Not     all who receive inherited homes come from money. Many blue collar workers and families bought in previous decades when homes were affordable, and are passing them down to their kids. They will see a tax increase. We’re going to see a different demographic. We were already seeing a major push of middle class and blue collar people,  that could afford a home in places like the Bay area, now moving into the central valley or other more affordable places because they just feel too uncomfortable living in their current homes. And now taxes are going to be even higher on inherited homes.”

A well known California realtor, who preferred to remain anonymous,  recently claimed: “With higher property taxes, keeping inherited homes as rental properties may become unprofitable, estate-planning attorneys are going to be very busy, as this new law may cause many people to decide to sell properties that they intended to pass on to their heirs.” 

Millennials and other younger generations will be impacted as well, avoiding property tax reassessment in CA People in their early twenties might decide to leave California, with no plan to ever return.  This is quite different than recent years, where the state was attracting a lot of young starter-home buyers. The same young adults are now looking carefully for more affordable homes, after graduating from college – even if that means leaving the state completely, with a new job; and perhaps a new family.

Another seasoned California realtor told us, on condition of remaining anonymous:  “It’s a real game-changer.  Both in terms of California properties being sold that would have been passed on through a family trust, or by the beneficiaries who decide they either can’t afford to pay property taxes based on a current assessed value, or just don’t want to pay the higher property taxes. The state’s going to make a lot of money.”

Higher property taxes or not, California will always be an attractive place to live. There is sunshine 12 months per year, an ocean nearby, convenient cities and yet rural areas 30 minutes away… “People are always going to want to live in California, but I can see life getting more expensive here a lot faster than I expected,” Mr. Solis added.