While using one of the previously discussed exclusions from reassessment is often the best way to avoid an increase in property taxes, they are not always available. There is an additional method available to some owners, called a Base Year Value transfer, that can be used, as well as some cases where a transfer does not trigger a change in ownership at all.
Base Year Value transfers
The California Constitution allows persons who are over the age of 55 or disabled to sell a principal place of residence and transfer the Base Year Value of the property to a new residence. The old property is called the original property and the new property is called the replacement residence. The transfer of base year value from the original property to the replacement residence is subject to certain conditions. The conditions are as follows:
1. The claimant is age 55 or over;
2. The claimant is severely and permanently disabled;
3. The original property of the claimant is sold and reassessed to current market value;
4. The replacement dwelling is purchased or newly constructed within two years of the sale of the original property;
5. Both the new and sold property are in the same county;
6. The replacement dwelling is of equal or lesser value than the original property.
Luis, who is over 55, has transferred his current principal residence to Noah. Luis wants transfer the base year value of his residence to a qualified replacement dwelling. The current market value of his principal residence is $500,000. Will he be allowed to transfer the Base Year Value $71,000 of his original property to replacement dwelling if the current market value of the replacement dwelling is $4,500,000? Or $380,000?
Assuming all other conditions are met, he will be allowed to get the Base Year Value transferred if it is $380,000 i.e. less than the current fair market value of his principal residence.
In general, an individual can transfer his or her Base Year Value only once. In addition, if a claimant makes a transfer and his or her spouse is also an owner of the replacement dwelling, the spouse will also be prevented from making a future claim for transfer of Base Year Value. However, if a claimant becomes severely and permanently disabled after using the one-time benefit on the basis of age, the claimant or the claimant's spouse is eligible for a second Base Year Value transfer for disabled persons.
Transfers that are not change in ownership
Some transfers of title to real property are not change in ownership. This is because they do not meet the requirement of the law to qualify as a transfer for the purpose of property taxes. These transfer often involve recorded deeds or other evidence of transfers of real property, but they do not represent changes in ownership. Hence, even if these transfers occur, they do not trigger reassessment real property. These transfers include:
1. Transfer of only bare legal title without the transfer of beneficial interest associated with the property;
2. Transfer to perfect title, or correct a deed for reflecting intentions of the parties;
3. Transfers to create a security interest not coupled with the right to use like a security for a loan; and
4. Transfer for sale and leaseback arrangement as a financing mechanism.
The Investment Needs LLC extended a loan amounting to $44,000 to Ms. Sheila Juwan, a young entrepreneur in 2013. As a security, Sheila transferred the title to her apartment worth $90,000 in the name of The Investment Needs LLC, but the apartment remained in her possession and use. If the Assessed Value of her apartment was $20,000 in 2012-13, what will be the new Assessed Value of her apartment in 2013-14?
The property stands transferred in the name of the Investment Needs LLC, but the treatment of the transfer for the purpose of Property Tax is different. The transfer is NOT a change in ownership because its purpose is creation of security interest without beneficial use of the property. Therefore, the Assessed Value of Ms. Sheila Juwan’s apartment will remain $20,000 plus 2% adjustment for inflation i.e. $20,400.
Reporting changes in ownership
The transferees, in cases of changes in ownership of properties, report the changes by filing the Change in Ownership Statement with the County Assessor.
Change in ownership statement
The Revenue and Taxation Code has made you responsible for reporting change of ownership of your property if you are a transferee in case of property transfer. In such cases, as case of change in ownership, you are to file a Change in Ownership Statement (COS). The Change in Ownership Statement is filed with the County Assessor of the county in which your real property is located.
The period of filing a Change in Ownership Statement has also been specified by the code. You must filed the statement:
1. At the time of recording the transfer of property; or
2. Within 90 days of the date of the change in ownership if the transfer is not recorded.
The Change in Ownership Statement contains information important for calculating Assessed Value and effective date of the new Assessed Value. Moreover, it facilitate the County Assessor in understanding the nature of property and transfer to make decision regarding exclusions. The essential information on the Change in Ownership Statement includes:
1. A description of the property;
2. The date of transfer;
3. The parties to the transaction;
4. The amount of consideration paid for the property (if any); and
5. The terms of the transaction.
The owner of real property signs the Change in Ownership Statement under penalty of perjury. However, the signing requirement is not needed if the Change in Ownership Statement accompanies the deed or other transfer document evidencing a change in ownership.
You may have to pay a penalty for failing to file the Change in Ownership Statement. It is because the law authorizes a County Assessor to impose a penalty for failure to file the Change in Ownership Statements.
The Revenue and Taxation Code also requires filing of the Change in Ownership Statement to report changes in control of legal entities owning properties.
County Assessors use the information reported on Change in Ownership statement to determine whether:
1. A transfer is a change in ownership;
2. A change in ownership meets one of the exclusions; and
3. The purchase price reflects fair market value.