Avoiding change in ownership: Exclusions and other transfers

Avoiding change in ownership: Exclusions and other transfers

Not all changes in ownership of property attract reassessment. Exclusions are types of transfers which do not trigger reassessment of your property for Property Tax purposes. Because a reassessment of your property will almost always result in an increase of its assessed value, and because Property Taxes are based on the assessed value, using these exclusions can be a great way to keep your Property Tax from increasing, sometimes dramatically.

Also, don’t forget that not all transfers of property result in a change in ownership. Even if these transfers take place, they will not trigger reassessment of your property for Property Tax purposes.

Exclusions

Some transfers are excluded from change in ownership by law. If transfer of title to a real property occurs through these transfers, i.e. exclusions, the transferred property is not reassessed to current market value on changing its ownership. Some specific examples of change in ownership exclusions are:

1. The inter-spousal transfer exclusion;

2. The registered domestic partner exclusion;

3. The parent-child exclusion;

4. The grandparent-grandchild exclusion; and

5. Original transferor exclusion.

Inter-spousal Transfer Exclusion

Transfer of property to a spouse is a change in ownership. However, such transfers do not trigger reappraisal of the transferred property because of Inter-spousal Exclusions.

Illustration

Aaron and Zoey has planned to marry this year. Aaron wants to give Zoey a long held property as a wedding present. Should he transfer the property to Zoey before marriage to avoid Property Tax increase?

Aaron should wait. He needs to gift the property after the marriage takes place in order to qualify for an inter-spousal transfer exclusion. Since the property is a long held property, it is likely to have a much lower Assessed Value than its current fair market value. Therefore, if it is assessed at current market value, Aaron will pay a much higher Property Tax bill!

The registered domestic partner exclusion

The registered domestic partner exclusion is very similar to the inter-spousal transfer exclusion. However, it only applies to purchases or transfers between persons who are registered domestic partners with the California Secretary of State.

The parent-child exclusion and the grandparent-grandchild exclusions

In much the same way that properties can be transferred between spouses and registered domestic partners, they can also be transferred from a parent to a child, or from a grandparent to a grandchild, without triggering reassessment of the property value.

Illustration

Which of the following transfers will trigger reappraisal of the transferred property?

1. Maria transfers her property to her husband Logan;

2. William deeds his long held property to Brandon, his registered domestic partner; and

3. Alyssa transfers her house to her daughter Marry.

None of these properties will be reappraised. In the above cases, inter-spousal, registered domestic partner, and parent child exclusions will apply respectively.

Original transferor exclusion

An original transferor is a person who creates a joint tenancy. For example, Edward creates a joint tenancy when he transfers his real property to others and remains among the resulting joint tenants. Edward will then be an original transferor.  All joint tenants other than an original transferors are referred to as other than original transferors.

In joint tenancy form of ownership, following transfers are exclusions:

1. Transfers that create a joint tenancy interest if after such transfer the original transferor is on title;

2. Transfers that transfers a joint tenancy interest if after such transfer the original transferor is on title;

3. Transfers that are transfers back to an original transferor; and

4. Transfers that transfers property to all of the remaining joint tenants and one or more of the remaining joint tenant is an original transferor.

Illustration

Identify the change in ownership and exclusions from the following transfers of real property.

1. Isadora Brubeck deeds out his office to his son Robert.

2. To finance her business, Aimee sold her condominium to a real estate agent for further sale.

3. Sally gifted a small house to her friend, Lincoln, on his birthday.

4. David gifted one of his houses to his wife Myra on her 29^th birthday.

1 and 4 are change in ownership and exclusions. 2 and 3 are change in ownership. Only 2 and 3 will result in reappraisal of the property.

Joint tenancy, and other forms of ownership, will be discussed more in-depth in a future post.