The assessment of property taxes on any California real estate transfer is an important consideration.
The sale of an excellent property to an unrelated third party will normally be re-evaluated at a higher tax rate.
However, some other transfers may be exempt from re-evaluation if they are properly structured.
Understanding the rules for reevaluating important property taxes can be saved.
The average national property tax is approximately $ 1,000 per homeowner and a little less than 1% of the value of the property [see “Taxes on residential property in the United States” by Benjamin Harris and Brian David Moore in the Center for urban tax policy). -Trabajos, 2013],
Although it varies a lot.
Related to California Property Tax Reassessment Remodel:
Some states, in general, have much higher property tax rates than others.
Additionally, some states also have state income taxes.
For example, some of the highest values of the property tax are New York and New Jersey, and as a percentage of the national value, the highest rates, more than 1.75%, are found in NJ, NH, TX, NE and WI.
In contrast, the lowest are in Alabama and Louisiana.
While Alabama, Hawaii and Louisiana have average rates of less than 0.35%.
However, in California, there is a wide variation between property taxes owed, as a percentage of current property values, from one neighbour to another.
Overview of California Property Tax Reassessment Remodel:
County tax assessors evaluate all California real estate on January 1.
The tax calculation is related to some cascading provisions of the California Revenue and Tax Code.
Section 51: establishes that the taxable value of the real estate is the lower of its value of the original year (combined annually by an inflation factor and that it has a limit of 2% of the value of the previous year) or the total value of the money.
Section 50: Definition of the value of the original year as the total monetary value or market value as of March 1, 1975 or the date of the most recent change of ownership or construction.
As the increases in value are estimated at 2 percent of the value of the previous year, the increase in the fair value of a real estate market can be significantly higher than the value assessed.
Below are some examples of the California property tax reassessment remodel:
Example: John bought a property 30 years ago for $ 100,000. The property is valued at 8 percent per year and is now worth $ 1,006,265.69.
However, the assessed value for tax purposes is limited to an annual increase of 2 percent. As a result, the estimated value is only $ 181,136.16.
This means that John is only taxed on the appraised value of $ 181,136.16, instead of the fair market value of $ 1,006,265.69.
Change in Ownership
The 2 percent benefit is related to homeowners by allowing them to pay taxes on an appraised value that is less than the fair market value of the property.
But the protection offered by the limit is lost if there is a change of ownership.
Section 60 of the California Revenue and Taxation Code defines a change in ownership as: “Change of ownership” means a transfer of current interests in a property, including the beneficial use of its interest, whose value is substantially equal to the value of the interest rate. When a property change occurs, the 2 percent limit is removed and the property is re-evaluated based on its current fair market value.
This increase in the value of the assessment results in higher property taxes.
Changes in Ownership Involving Transfers to Spouses or Registered Domestic Partners:
Like California property rights laws, the California Revenue and Taxation Code deals with a married couple as a single economic unit.
While the owners were married at the time of the transfer, a transfer from one spouse to another is not re-evaluated. The marriage transfer exception applies to life transfers and death transfers.
Suppose, for example, that spouses have the right to community property with a right to survival.
This means that the property will be sent to the surviving spouse when the first spouse dies. Upon the death of the first spouse, all property is owned by the surviving spouse.
This transfer of death will not result in a re-evaluation of the property for tax purposes.
The exception of interval transfers also applies to transfers to spouses or ex-spouses as part of a divorce.
A transfer to a spouse or ex-spouse of a property settlement agreement or decree dissolving the marriage or legal separation will not cause the property to be re-evaluated for tax purposes.
Similar rules apply to registered domestic partners.
The transfer of California real estate between registered domestic partners as of January 1, 2006 is exempt from reevaluation.
This includes transfers within or outside of a trust for the benefit of an originating partner, the addition of a domestic partner to a deed, transfers to the death of a household partner, and transfers under a settlement agreement or court order on the termination of the association house.
Changes in Ownership Involving Transfers Between Joint Owners:
The California Revenue and Taxation Code exempts the reassessment of the transfer of a principal residence if the transfer occurs in the event of the death of one of the co-owners.
This exemption applies to all forms of shared ownership, including tenure in ordinary and joint tenants with right of survivorship.
To qualify for an exemption, the transfer must meet these requirements:
The transfer must be made in case of death of one of the co-owners;
Both joint owners must keep 100 percent of the property together as common tenants or tenants;
The two co-owners must own records during the period of one year immediately preceding the death of one of the collectors;
The property must be the principal residence of the two co-owners for the period of one year immediately preceding the death of one of the collectors;
The surviving joint owner must receive 100% interest in the property; Y
The surviving joint owner must sign an affidavit stating that he or she has resided continuously in the residence for the period of one year prior to the date of the death of the settlement
If these requirements are met, the value of a superior property will not be reevaluated to transfer the property to a joint owner in the event of the death of the other joint owner.
California Property Tax Reassessment Remodel – Changes in Ownership Involving Transfers to Business Entities:
There is also a special monitoring rule in the California Revenue and Taxation Code: if ownership interest in a legal entity is transferred to California real estate, the transfer of commercial interest is treated as a change in ownership of the property if:
There is a change of control of the entity (more than 50 percent of the shares with voting rights of the companies or more than 50 percent of the participation of the company or LLC);
When more than 50 percent of the interests of the original business owners (cumulatively measured) are transferred.
This rule prevents property owners from re-evaluating by creating a commercial entity to become a real estate owner and then transferring the interest in the business entity instead of creating a new deed of ownership. There is a specific exception for the most common real estate situation when property owners transfer to a commercial entity and receive an interest in the business entity that is proportional to their previous ownership of the property.
Under the exclusion of interest for proportional ownership, the transfer of California real estate between one or more persons and legal entities, or between legal entities, is exempt from reevaluation:
The measure is not just a change in the ownership method of ownership (for example, a 50 percent interest in real estate has been transferred to a 50 percent interest in LLC with real estate);
Before and after the transfer, the corresponding interests of the transferors are the transfers and all the real estate involved in the transfer.
This rule is designed to protect the property of a reassessment, unless there is a change in the economic interests of the owners.
Example: John and Mary have a 50 percent interest in real estate in California.
For asset protection purposes, John and Mary act to benefit 50 percent ownership of Acme LLC. John owns 50 percent of the stake in Acme LLC and Mary owns the other 50 percent.
Since the 50 percent interest in the LLC is equal to the 50 percent interest that John and Mary had on the property, the transfer is exempt from reevaluation.
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