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Marlene Cooper Law

Property Tax Reassessment Exclusions

Even though my husband and I are not in the market for a new home, we like to follow the real estate market. It is interesting to see how location, size, renovations, timing and foreclosures affect home prices. We have seen houses that are literally next door to one another selling for a price difference of $150,000. One thing that is not apparent from the sales price, however, is the difference in property taxes neighboring properties may be subject to. One owner on the block could be paying thousands less than other owners on the block. The main reason for vast differences in property taxes is the reassessment of property taxes by the county tax assessor when a property changes ownership.

When a home changes ownership, the State of California can impose a property tax that “shall not exceed one percent (1%) of the full cash value of the property,” as stated by California Proposition 13, passed in 1978. Additionally, annual increases of assessed value of real property are restricted to an inflation factor, not to exceed 2% per year. So, for example, if Mark Jones bought a home for $300,000 in 1986, the base property taxes imposed were about $3,000, and his taxes should not have been raised in excess of 2% per year thereafter. Now, assume that in 2012 Mark Jones passes away and leaves his home, now valued at $600,000, to his brother. The tax assessor will reassess the property as of the date of Mark Jones’ death. Based on the current value of the home, Mark’s brother will pay a base property tax of $6,000.

Every time I complete a living trust for a client who has real property, I prepare a deed transferring the property from the individual back to the individual as trustee of the trust. For example, “John Smith grants 123 Main Street to John Smith, Trustee of the John Smith Trust”. This is the step that avoids probate of the real property upon the property owner’s death. Placing one’s home in a living trust does not trigger a reassessment of the property taxes because the transaction is exempt from the rules regarding “change of ownership”. I always notify the tax assessor’s office about the nature of the change by filing the proper paperwork along with the deed so that the property is not mistakenly reassessed.

Another very important exemption from reassessment is one that can be claimed by children when they inherit real property from their parents. Depending on the circumstances, such an exemption can also be claimed by spouses of children and step children. When an adult child passes away and real property is left to his or her children (grandchildren of the property owner), the grandchildren may be able to apply for an exemption based on the grandchild/grandparent relationship. There are time limits associated with filing for the exemption so it is important to make a timely claim.

If a real property owner passes away and leaves his or her home to someone not entitled to an exemption such as a sibling, a friend or even a grandchild where the parent is still alive, the tax assessor will reassess the current value of the home and raise the property taxes to about 1% of the home’s current value. This could mean a double or even triple increase in property taxes, depending on how much the home’s value has increased. Some people think they can avoid property tax increases by never filing paperwork showing that the property owner has passed away. I have frequently seen the situation where people continue to live in the home and pay the tax bills as they come due for years. When the tax assessor’s office finally learns of the death of the property owner, the tax assessor’s office will reassess the property as of the date of death, issue a supplemental tax bill and try to collect all of the back taxes. If the children of the property owner are the ones that continue to live in the home and simply pay the tax bills as they come due, they may find themselves in the unfortunate situation of being unable to claim reassessment exclusion because they simply waited too long to do so. Unfortunately, if the time limit has passed, the exemption may be unavailable. © 2014 by Marlene S. Cooper. All rights reserved.

Marlene Cooper Law