Property Tax Assessments

As a general rule, real property in California is reappraised for tax assessment purposes when there is a change of ownership, new construction, or the market value declines below the previously assessed value. However, in the nonprofit world of real property, a reassessment may also occur due to a loss of a Church, Religious, or Welfare exemption. Although these exemptions are explained in another article, their affects can greatly impact your property tax assessment.

Otherwise, the assessed value of the property will increase by no more than 2% per year. Under Proposition 13, the property tax rate is 1% of assessed value, plus any bonds or fees approved by popular vote. An annual tax bill may also include other direct assessments, special assessments and levies, which are not property taxes, nor is the property generally exempt from these.

Trigger – Changes In Ownership:

The Assessor’s Office reviews all recorded deeds to determine which require reappraisal. The Assessor may also request additional information from the owner about a deed or other changes in ownership. Often times, information about a sale, such as special financing, or a sale that included personal property, can result in a lower assessment. The Assessor then determines the full cash value of those properties as of the date they changed ownership.

Trigger – New Construction:

The Assessor’s Office receives copies of all building permits issued within the County and the Assessor independently determines if the new construction should be assessed. If so, the value of the new construction is determined and added to the assessed value of the existing property. (The previously existing property value assigned is not generally reassessed.)

New construction is appraised at its value as of the date it was completed; however, if January 1st occurs before completion, the unfinished new construction is also appraised at its percentage of completion for that year. However, new construction, which is not intended to be occupied by the builder/owner may escape taxation until triggered by certain events, (not covered in this article). Repairs, replacement, and maintenance are normally not considered to be new construction.

  • Supplemental Assessments: Depending on certain happenings, there may be a supplemental tax bill produced if there was an increase in value. If reappraised due to a change in ownership or completion of new construction, you will then be notified by mail of the new value and the supplemental taxes due. If the new value is less than the previous value, it may result in a refund.
  • Escape Assessments: If the property reassessment is not timely processed by the Assessor, it is termed an Escape Assessment and often done to avoid errors, or newly discovered happenings having occurred, and not previously known to the Assessor. This can occur due to different circumstances including, but not limited to: (i) your business property statements not being timely filed; (ii) an unrecorded transfer of title; (iii) failure to report a transfer a title resulting from the death on an owner; or (iv) non-permitted new construction

Exclusions from Property Tax Reassessments:

While a transfer of real property may constitute a change in ownership, the legislature has created a number of exclusions so that some types of transfers are excluded, by law, from the definition of change in ownership. Thus, for these types of transfers, the real property will not be reappraised.

The following are some of the more common examples of transfers in title to real property which are generally excluded from property tax reassessments.

  • Living Trust: Any transfer of title by an individual to or from a living trust does not generally trigger a tax reassessment. This is because the Revenue and Tax Codes recognizes that transfers to living trusts for estate planning purposes do not usually involve a change in ownership provided: (i) the person transferring the property is the present beneficiary of the trust; or (ii) the trust is revocable.
  • Joint Ownership: Transfer upon death are often exempt when title then passes from the deceased owner to that of the joint tenant, or tenant in common. Provided the following requirements are satisfied, the transfer of title will not cause reassessment: (i) transfer occurs on the death of one of the joint owners; (ii) both owners together hold 100% of title as tenants in common or joint tenants; (iii) both owners were on title as the owners of record for at least one-year immediately preceding the death of the other owner; (iv) the property was principal residence of both joint owners for at least one-year immediately preceding the death of the other owner; (v) the surviving joint owner obtain 100% interest in the property; (vi) the surviving joint owner signs an affidavit affirming that he or she continuously resided at the residence least one-year immediately preceding the death of the other owner.
  • Community Property: Inter-spousal transfers, from one spouse to another, provided the owners were married at the time of the transfer of ownership, or upon the death of one spouse, does not cause a tax reassessment. This exception will also apply when the transfer of title is a result of a settlement agreement in a divorce or legal separation.
  • Business Entities: When title is held by a business entity or individual wherein one transfers title to another, reassessment does not occur provided: (i) the title transfer is only a change on the manner in which title is held, (100% interest in real estate converted to a 100% interest in a business entity that owns the real estate); and (ii) both before and after the transfer, the proportional interests of the transferors and the transferees is the same for every piece of real property involved in the transfer.
  • Children and Grandchildren: California Propositions 58 and 193 allow the new owner of record to avoid property tax increases when acquired from their parents or children or from their grandparents. The new owner’s taxes are calculated on the established Proposition 13 factored base year value, instead of the current market value when the property is acquired. In order to qualify, the property must have either: (i) the grantor primary residency, (no value limit); or (ii) transfers of the first $1 million of real property other than the primary residences. The $1 million exclusion applies separately to each eligible transferor.

Transfers may be result of a sale, gift, or inheritance. A transfer via a trust also qualifies for this exclusion.

 

Please see our other related articles

Holding title to property
Choosing the Right Business Entity and Entity Formation
Churches and Property Tax Exemptions
Wills and Trust

 

Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax or other professional service. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.

 

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