June 15, 2014
It is not just the IRS that should considered when transferring interest in real property Case #1. Girl and boy in love and engaged to be married. Girl owns her house and as a demonstration of her love, puts her fiancée on the deed. Case #2. Brother and sister are left two commercial properties by their mother, each with 50/50 ownership interest in each property. Brother and sister think, “Wouldn’t it be easier for each of us to be able to own one by ourselves?” Both cases had the same result. The County of Los Angeles reassessed the base year tax for real estate taxes as of the time of transfer.
- In neither case did the parties realize the consequence of the transfer.
- In both cases, the real estate tax that was being paid at the time, due to “Prop 13″ was low in comparison to the reassessed value.
- In both cases the owners were surprised by a huge increase in their real estate taxes.
The valuation of the Base Year upon transfer can be argued, however it is complicated. If the names are different, the County might not realize that the transfer was a 50% interest (as in the case of the young lovers). The value has to be appraised as of the time of transfer and there is a formula to blend the value of the original interest with the newly transferred interest . Even after appeal, the Assessor’s office is not always correct in completing the paperwork on the transfer. MacVaugh & Co is a registered tax agent and has successfully had the Base Year Valuations reduced. We can go back 3 years. Think before you blindly transfer property out of demonstrations of fidelity or familial harmony. Speak with your accountant before making any decisions on real property transfer. If it is too late, call MacVaugh & Co.