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Real Estate Taxes in California

Property taxes – giving your house to your kids

California allows real estate owners to transfer their residence to their children without increasing the real property taxes. It has nothing to do with whether the owner has a living trust, a will, or powers of attorney. It is a benefit to children of property owners.

Generally when a property is sold in California to a third party, the County Assessor will re-assess the property (obtain a current value) for a property tax increase (rarely a decrease) based on the date of the transfer. A transfer includes transferring ownership because the property is sold, gifted, or the owner dies.

But a re-assessment will not occur if the owner gifts or sells the property to his or her children while the owner is alive, or the children inherit the property at the owner’s death. This latter method is the most common. The value of the property is immaterial. It can be the largest mansion or the smallest bungalow (or condo, or mobile home, etc.). But it must be the residence to escape a valuation requirement.

This rule for children also applies to the owner’s other real estate that is not the owner’s residence, such as rental property or land. But in that case the value of the property cannot exceed one million dollars. The value is not determined by an appraisal. The value used is stated on the property tax bill, and is generally lower than if it were appraised. If the value exceeds on million dollars, the excess value will be re-assessed.

The process is simple where there is only one child, and that child inherits the property. To be free from re-assessment, a parent/child exemption form must be filed with the San Diego County Assessor. The Assessor will not reassess the property. Only when the child sells or transfers the property to a third party will the Assessor act. But if the child eventually transfers the property to his or her child or children, they receive the same benefit of no re-assessment.

Sibling unhappiness might result where there are more children and fewer assets.

That is not the case where there are two children, a residence worth $400,000 and accounts of $400,000, where the parents’ living trust merely requires an equal division of the assets. One child can take the house and the other child takes the accounts. There will be no re-assessment.

But if there is a house worth $400,000 and accounts of $200,000, and the trust requires an equal split among the two children, one child cannot take the house and give the other sibling $100,000 plus the accounts without a partial re-assessment. The exemption only works from parent to child, and not from sibling to sibling.

The two children could agree to become joint owners of the house and the accounts and there will be no re-assessment. But if later one sibling sells his/her half of the house to the other sibling, there will be a partial re-assessment of that half. There is no exemption between siblings.

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