Inheriting Property Under Prop 19 - Not as Good as it once was, but can still Save you some Cash!

Inheriting Property Under Prop 19 – Keeping Lower Property Taxes

In the old days you could simply inherit a home from your parents in San Carlos CA and keep their low property tax rates. Gone are those days – things are more complicated now! Today, when inheriting Property Under Prop 19, if the property was not your parents’ primary residence, then it will have its property taxes reassessed based on date of death market values.

Even, if the property was your parents’ primary residence, if you don’t intend to make it your primary residence, then again it will have its property taxes reassessed based on date of death market values. So, to get a break on the property taxes, the property must have been your parents’ primary residence and you must make it your own too within a year of getting title to it.

If that San Carlos CA home was your parent’s primary residence and you do plan on living in the house, then you can get a reduction from the full reassessment when inheriting Property Under Prop 19. The formula for the new property taxes is that you take the assessed value on property tax rolls plus $1,000,000 and that becomes the new base. Then you subtract out the difference from the property’s value at date of death and add that to the new tax assessed value! Sounds confusing? Let’s do an example.

Example:

Assume that the assessed tax value was $200,000 at the date of death and that the property has a fair market value of $1,800,000.

$200,000 + $1,000,000 = $1,200,000 new base value
$1,800,000 – $1,200,000 = $600,000 difference between new base value and the fair market value
$200,000 + $600,000 = $800,000 (new property tax base value = old assessed tax value + the difference between new base value and the fair market value)

The new property taxes are now based on an assessed value of $800,000 instead of $1,800,000 which should save the new homeowner approximately $12,000/year in property taxes. However, the homeowner now pays around $10,000 in property taxes per year vs. the $2,400 paid by their parents! Property taxes around San Carlos CA should be roughly 1.2% of the assessed value.

Tricks to Avoid a Reassessment

Family Farm: You could try declaring the property a family farm – might be a tough call in San Carlos CA. There are some requirements for that classification, but they seem minor. The thing is that the Assessor can always reject the farm classification, so it’s a risk when you try a trick to avoid a reassessment.

LLCs and Partial Transfers: You could also hold title under an LLC and transfer fractional ownership of the property over years. In theory, transferring title over time doesn’t get flagged as a full property transfer and the property taxes might remain unchanged. Here too, the Assessor could reject your plans!

These tricks require assistance from professionals like attorneys and accountants and may not be guaranteed. Call us and we’ll be happy to refer you to a professional that can guide you through this tax maze.