Estate Planning: Property Taxes

By Tamara Polley

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It’s that time of year again, when homeowners pay their annual property taxes … Happy holidays! This year we are faced with two things we don’t want to think about in these tough economic times: taxes and reduced property values. However, in the hope of spreading some holiday cheer, here’s a little good news that may help reduce future tax bills.

You can request a property tax reassessment if you think the assessed value of your property is too high. Real property is typically reassessed when there is a transfer of ownership, with the new assessed value based on the purchase price. Therefore, if you purchased your property at the height of the market, its current value may now be significantly lower and your assessed value higher than it should be. You can request a reassessment.

California law allows for a temporary reduction in assessed value when a real property’s market value falls below its assessed value. The assessor’s offices in Tuolumne and Calaveras counties have performed automatic reviews of the assessed values for some properties, and made temporary reductions without requests from property owners. If you have not received a reduction, you can file a Request for Property Review form with documentation supporting your request. I recommend calling the assessor’s office in your county to find out what its procedures were for the automatic reviews, and what it requires in support of a request for reassessment.

§    In Tuolumne County, 2 South Green St., Sonora, 533-5535, co.tuolumne.ca.us.

§    In Calaveras County, 891 Mountain Ranch Road, San Andreas, 754-6356, co.calaveras.ca.us.

There is no deadline for filing the form, but if it is filed too late in the year, the reassessment may not affect the current year. Filing also will not affect valuation for any prior years, and it does not extend the deadline for filing assessment appeals or excuse the property owner from paying property taxes due.

If your assessed value has been temporarily reduced, be aware that your property will be reassessed again annually – and future increases will not be limited to 2 percent per year until the assessed value reaches that existing at the time of the temporary reduction.

For example: Fred bought a home in 2005 for $350,000. Now it is only worth $200,000, so he files the form and gets its assessed value reduced to $200,000. Fred’s property can then be reassessed each year and, if the market continues upward, can be increased to its current market value, regardless of the normal 2 percent limit. After it reaches the $350,000 threshold, any later increases will be capped at 2 percent per year unless there is a transfer of ownership.

Certain transfers of real property will not trigger a reassessment. For those who have owned their property for a long time, the assessed value is probably much lower than its current market value, even in this depressed economy. If you transfer your property to your children or grandchildren, either during your lifetime or by inheritance, the transfer may be exempt from reassessment.

California law provides that transfers of real property between parents and children are exempt from reassessment. Transfers between grandparents and grandchildren are exempt if the grandchildren’s parents died before the date of transfer. These exemptions apply to transfers of a primary residence of any value, and transfers of the first $1 million of real property other than the primary residence.

There are no exemptions for transfers between siblings. So if your children inherit your home and then one child buys the others out, there will be a reassessment. Although this is sometimes unavoidable, property tax implications of all likely transfers should be considered in drafting your estate plan.

The California Board of Equalization has a helpful website, www.boe.ca.gov, with answers to frequently asked questions about these and other property tax issues.

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