How to Keep the Property Taxes Low On Your California Home
The Six Property Tax Reassessment Exclusions That Every Homeowner Should Know About
California takes the top spot for the most expensive real estate in the country. The median home price as of November ‘23 is $793,000; more than double the national median home price of $382,600. Nevertheless, California homeowners enjoy some of the lowest property tax bills in the nation. The average effective property tax rate in California is 0.77%; which means, someone that purchases a $1M home, can expect to pay less than $600 / year towards property taxes.
This is primarily due to Proposition 13, which essentially converted the market value-based property tax system to an acquisition value-based system. Put simply: If someone purchased their primary residence in 1985 for $250,000, and the value of the home appreciates to $1.25M (a common phenomenon in California), the homeowner’s property taxes will remain anchored to the 1985 base year value of $250K; despite the fact that the home has increased in value by $1M. Not until the home is sold, will it be reassessed at the current market value.
But aside from Prop 13, there are a handful of reassessment exemptions that homeowners can exercise when transferring ownership of their property. This piece will break down six of the most often utilized change in ownership reassessment exclusions that every homeowner should be privy to.
First and Foremost, A Refinance Will Not Trigger a Reassessment
Refinancing your home - whether it be a HELOC (Home Equity Line of Credit) or Cash-Out Refi - is not considered a change in ownership, and should not result in a reassessment. You do not have to complete any forms in order to receive this reassessment exclusion. But keep in mind, the County Assessor may request additional information in order to verify that the transaction was for refinancing purposes only.
Inter-Spousal Change in Ownership Reassessment Exclusion
Transfers of property between spouses during marriage are excluded from reassessment. The same exemption applies to transfers between former spouses after marriage (in connection with a property settlement agreement or dissolution). No forms are required to be completed or submitted; however, additional documentation may have to be provided.
Registered Domestic Partners Change In Ownership Exclusion
As of January 1, 2006, transfers of real property between registered domestic partners are not considered assessable changes in ownership. There is no form to complete, however, documentation will be requested.
This exclusion covers:
A transfer in (or out) of a trust for the benefit of a partner.
The addition of a partner on a deed.
A transfer upon the death of a partner.
A transfer pursuant to a settlement agreement.
A transfer pursuant to a court order upon termination of the domestic partnership.
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Co-tenancy Change in Ownership Exclusion
The transfer of interest in real property from one co-tenant to a surviving co-tenant (upon the death of the transferring co-tenant), is excluded from reassessment.
Parent to Child Change in Ownership Exclusion
For any transfers that occur on or after February 16, 2021: Transfers of real property from parents to children (or children to parents) may be excluded from reassessment if a claim is filed and certain requirements are met.
This exclusion applies to the principal residence of the transferor (i.e. the transferor must have resided at the property), and the transferee is required to occupy the property as their principal residence after the transfer takes place.
This exclusion is limited to the sum of taxable value of the property plus $1 million of market value. Any overage is added to the taxable value to determine the new taxable value.
Family farms also may qualify for this exclusion with no principal residence requirement.
For any transfers that occurred before February 16, 2021: Transfers of real property from parents to children (or children to parents) that occurred before February 16, 2021 fall under the old rules of Prop 58. These transfers may be excluded from reassessment if a claim is filed and a slightly different set of requirements are met.
Just as applies to transfers that occur after February 16, 2021, the home must have been occupied as a principal residence, and it’s capped at $1,000,000 (taxable value).
Grandparent to Grandchild Change in Ownership Exclusion
The Grandparent to Grandchild Exclusion is subject to the same dates and principal residence requirements as the Parent Child Exclusion as stated above, with one limiting condition:
Parent(s) of the grandchild, who qualify as a child(ren) of the grandparent, must be deceased when the transfer takes place
Proportional Interest Transfer Change in Ownership Exclusion
Any transfer between an individual and a legal entity (or between legal entities such as a Trust or LLC) that results solely in a change in the method of holding title (i.e. the proportional ownership interests of the transferors and transferees do not change) is excluded from reassessment. No forms or claim for assessment exemption must be filed. However, additional documentation may be requested at the time of recording.
These are six reassessment exclusions that can be utilized by homeowners when transferring title of their property.
While specific exemptions may vary a bit depending upon where the property is located, most counties throughout the state of California respect an iteration of the above listed exemptions.
For any guidance or assistance with carrying out a property tax reassessment exemption, please feel free to reach out.
Our team is more than happy to help.