In California, it’s not uncommon for neighbors to pay vastly different property taxes. Depending upon when a person acquires a parcel of real estate, one homeowner may pay $8,000 or more annually in property taxes for a property worth $800,000 when his or her next-door neighbor owning an identical home may only pay $2,000 annually in property taxes.
This disparity in the amount Californians pay in property taxes stems from Proposition 13, which sets the base amount of property taxes for a parcel of real estate at 1 percent of its fair market value when that property is acquired. The county assessor is not allowed to reassess the property annually. Instead, the property taxes are allowed to increase slightly each year. No dramatic increase is allowed until there is a change of ownership in the real estate. When a change of ownership occurs, the county assessor is then allowed by Proposition 13 to reassess the property so the property tax base annually is equal to 1 percent of the current fair market value of the property at the time of the transfer.
Is the transfer of your home after you die considered a change in ownership, which will allow the county assessor to reassess the property tax for the home? The answer is yes!
Fortunately, there are a few exceptions to that rule. One of the most important exceptions to reassessment is found in Proposition 58, a statewide proposition which was passed by California voters a few years after Proposition 13. Pursuant to Proposition 58, a transfer between a parent and a child, either during the parent’s lifetime or following the parent’s death, is excluded from property tax reassessment.
But there are limits to this exclusion. It applies to the transfer of the parent’s residence and to real estate other than the residence, so long as the combined assessed value of the real estate other than the parent’s residence is $1 million or less. The exclusion is not automatic. A written claim form must be filed with the county assessor for the county in which the property is located within three years of the transfer date. This means that the claim form must be filed within three years of death for the inherited real estate. This exception to property tax reassessment also applies for transfers of real estate from a child to his or her parent.
In future editions of the newsletter, we will share how a home may be inherited by one of several children beneficiaries without triggering a sibling-to-sibling partial property tax reassessment.