March 10, 2010

Prop 13

When somebody inherits a home via a will, trust, intestacy or by gift, it is not necessarily true that the value of the home will be re-assessed for property tax purposes. 

This can be especially important to a beneficiary who inherited a home from his parents or grandparents since they probably had a low base year value of their home. For example, if Bobby Beneficiary inherited a home, currently valued at $1 million dollars, from his late parents who had purchased the home for $50,000 decades ago, he would not be liable to pay property taxes on the assessed value of $1 million dollars but rather on $50,000, plus annual adjustments. (See Example 4).

Of note, Proposition 13 caps the levying rate for property taxes in California at 1%. Cal Const art XIIIA, §1.

The following are examples of situations in which the transfer will not result in a “change in ownership” and thereby avoid the dreaded re-assessment for property tax purposes. 

1. Transfers in which proportional ownership interests remain the same before and after transfer 

For example, Husband and Wife own a rental home in joint tenancy (50/50 split) and transfer it to a limited liability company in which they have same membership interest (50/50 split). Rev & T C §62(a). 

2. Transfers to revocable trusts 

For example, Husband and Wife execute a revocable (living) trust and transfer the home they live in into the trust by transferring title from themselves to the trust by naming the trustee of their revocable trust as owner. Rev & T C §62(d). 

3. Interspousal transfers 

For example, Husband and Wife own their home in joint tenancy, Husband dies and Wife inherits the other half of the house. Rev & T C §63. 

4. Parent-child (or grandparent-grandchild) transfer 

For example, in the case of a Parent-Child transfer, Husband and Wife own a home and have one child, Son. Husband and Wife pass away and Son inherits the home. Furthermore, in the case of a Grandparent-Grandchild transfer, Grandparent is only survived by a Grandchild, that is no child of the Grandparent outlives the Grandparent. Rev & T C §62. 

5. Persons over age 55 or who are severely and permanently disabled may transfer the base-year value of a residence to a replacement dwelling in the same county, or in another county if the board of supervisors of that county adopts an ordinance granting base-year-value relief to replacement dwellings when the original dwelling was located in another county 

As of this writing, seven counties (Alameda, Los Angeles, Orange, San Diego, San Mateo, Santa Clara, and Ventura) have ordinances granting base-year-value relief to replacement dwellings when the original dwelling was located in another county per Rev & T C §§ 68-69.5. For example, Person purchases a home in San Jose (Santa Clara County) and upon reaching the age of 55 sells their home in San Jose in order to purchase a home in Redwood City (San Mateo County) so they can be closer to their family.