Property taxes can eat a big chunk of one’s income. Property taxes are assessed annually, by the relevant county assessor on Jan 1, at 1% of the assessed value. Increased assessments are limited to 2% increase, unless there has been a “change of ownership.” If there has been a change of ownership, the property gets reassessed to its current fair market value, and taxed accordingly. This can make a big difference if the prior property owner had the property for a significant length of time.
Often, transactions between family members result in unintended increases in property taxes, because the transfers were deemed taxable changes in ownership. But not all transfers of ownership are “changes of ownership” for purposes of reassessment. The legislature has designated several transactions as exempt from reassessment. This article will provide a brief overview of what type of transfers are not subject to reassessment, and will therefore avoid a bump in property taxes.
Reassessment is generally triggered by transfers:
- between individuals
- between entities
- within entities
Revenue & Taxation §61 sets forth the type of transfers that, barring an applicable exclusion, will qualify as a reassessable change in ownership. These include:
- The creation /transfer/ termination of Joint Tenancy or Tenants in Common interest;
- The creation /transfer/ termination of long term leases or options (over 35 years);
- Transfers to a beneficiary of lifetime interest in income from a trust;
- The vesting of a remainder or reversionary interest upon termination of a life estate;
- The vesting of an interest in a beneficiary other than the trustmaker upon the trust becoming irrevocable;
- The creation, renewal, sublease, assignment, or other transfer of mineral or oil rights;
- The transfer between entity (corporation, partnership, or other legal entity) and any individual.
However, the interest transferred won’t trigger reassessment unless it is a present interest, and it includes the beneficial use of property. And as mentioned above, there are dozens of exemptions to the general rules set forth above. Each of these exceptions, many set forth in R&T §62, is discussed more at length in subsequent articles:
- Spousal and Domestic Partner Transfers
- Parent → Child and Grandparent → Child Transfers
- Principal Residence Cotenancy Transfers
- Entity TransactionsE
- Joint Tenancies Transfers
- Transfers to and from Revocable Trusts
*Many of these exemptions only apply, however, if there is no change in proportional interest.