Transfers trigger reassessment
In California, real estate is reassessed at market value by the local tax assessor when its ownership is transferred, typically by a sale. As a result, reassessment at a higher value causes property taxes to increase, sometimes dramatically. [Calif. Revenue and Taxation Code §§63 et seq.]
When a title transfer triggers reassessment, a new base year value for the property is established equal to the sales price (or current market value if higher) of the property at the time of transfer. However, under Proposition 13 (Prop. 13), many transfers are automatically excluded from reassessment.
Exclusions to reassessment
An exclusion from reassessment occurs when the transfer of property or a portion thereof is:
- automatically excluded from reassessment; or
- eligible to be excluded with a properly filed claim. [Rev & T C §§63 et seq.]
Clients often consult their agents when seeking to add or remove persons from title in conveyances which are not part of a transaction negotiated by the agent. Any advice given by the agent is based on their knowledge about conveyances or other transfers which change title and trigger reassessments as dictated by Prop. 13 legislation.
By knowing which transactions are excluded from reassessment, an agent properly advises their client on the effect the transfer will have on their property taxes.
Transactions which do not trigger reassessment include:
- a transfer solely between a husband and wife [Rev & T C §63];
- a transfer between parent(s) and child(ren) [Rev & T C §63];
- a transfer from grandparent(s) to grandchild(ren) where the parents of the grandchild(ren) are deceased [Rev & T C §63.1(a)(3)];
- a transfer between registered domestic partners [Rev & T C §62];
- the replacement of a principal residence by a person of 55 years of age or older within the same county or a participating county which allows the carry-forward assessment from their prior county where the replacement property is of equal or lesser value than the original residence [Rev & T C §69.5];
- participating counties currently include Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne and Ventura (subject to change);
- the replacement of a principal residence by a person who is severely disabled [Rev & T C §69.5];
- a title update to properly reflecting the name(s) of the person(s) holding title to the property (e.g., a name change upon marriage) [Rev & T C §62];
- a change to title recorded only as a requirement for financing purposes or to create, terminate or reconvey a security interest (e.g., co-signer) [Rev & T C §62];
- the recording of a document to substitute a trustee of a trust, mortgage or other similar document [Rev & T C §62];
- a transfer that results in the creation of a joint tenancy in which the seller (transferor) remains as one of the joint tenants [Rev & T C §65];
- a transfer that returns the property to the person who created the joint tenancy (original transferor) [Rev & T C §65];
- a transfer between an individual and a legal entity (or between legal entities) that results solely in a change in the method of holding title (the proportional ownership interests of the transferors and transferees remain unchanged) [Rev & T C §62]; or
- a transfer of 50 percent or less of the voting stock or ownership interest in a legal entity holding real property. [Rev & T C §64];
Transfers between siblings
A common misconception among property owners is that any transfer between immediate family members is excluded from reassessment.
Consider two siblings who co-own a property they purchased together. Several years later, one of the siblings decides to relinquish their ownership interest to other. The property’s market value has increased significantly since they purchased the property. Does the transfer trigger reassessment?
Yes! The transfer triggers reassessment of 50 percent of the property to current market value. Thus, half of the property assessment remains at its prior base year value while the other half is assessed at the new base year value.
Unless the transaction qualifies for exclusion, transfers between siblings — or anyone else for that matter — trigger reassessment.