3

I own a property with my partner. To make it simple, let's say we bought the property for $100K five years ago and now pay property taxes at this base price plus the usual 2% increase per year. If I now buy my partner out for $75K which puts the new value of the property at $150K, what is the price that I would get taxed at? Is it $150K or $125K or something else? thank you

Improve this question

2 Answers 2

Reset to default
2

Can't vouch for LA, but property typically is taxed at either the appraised value, the most recent purchase price ("if it wasn't worth that much, you wouldn't have paid that much"), or some combination of the two (usually highest of the two, to prevent "$1 and other goods and services" from lowering the tax to zero).

You have now explicitly paid a total of $125k for the property; the fact that you bought it in two stages shouldn't be relevant. But "should" and law are only tangentially connected.

I'd recommend asking a tax accountant who know your local practices, unless someone here can give you an authoritative answer.

Improve this answer
4
  • 1
    I think that property is taxed based on the assessed value and not the appraised value. At least in my area of residence, the appraisers walk through the entire property, lifting the lids of toilets (date stamped into porcelain usually indicates most recent re-model), peering under the sinks for leaks, etc, whereas the assessors don't get to come inside the house (unless the homeowner agrees to it) and so cannot evaluate the granite countertops, gold faucets, marble floors, etc (except by peering through windows) in deciding the assessed value.
    – Dilip Sarwate
    Commented Jul 9, 2016 at 15:54
  • 1
    The difference between assessment and appraisal varies from place to place. Here, they do try to do a drive-by assessment most of the time, but sometimes they want do a walk around not very different from what insurance companies call appraisal (which is far short of inspection), Understand your local rules, and don't assume they are identical elsewhere.
    – keshlam
    Commented Jul 9, 2016 at 19:13
  • 1
    Insurance company appraisals (for the purpose of homeowners' insurance) are more cursory than the appraisals that mortgage lenders use for deciding how much they are willing to loan on the property which in turn are more cursory than the home inspections that buyers insist on (or should insist on) as a contingency that allows them to back out of the deal, or renegotiate the deal based on what the home inspection uncovers. I recommend that you take your own gratuitous advice "Understand your local rules, and don't assume they are identical elsewhere" to heart.
    – Dilip Sarwate
    Commented Jul 9, 2016 at 19:23
  • 1
    Dilip, I think we are actually in agreement and just phrasing it differently. (And the "gratuitous" phrase was directed to the readers, not to you; please don't take offense where none was intended.)
    – keshlam
    Commented Jul 10, 2016 at 5:15
2

When property changes hands the sale prices may or may not be used to determine the appraised value of the property, and they may or may not be used to determine the appraised value of other properties.

Because of the nature of the transaction: you already have an existing business relationship, the local government is likely to ignore the data point provided by your transaction when determining values of similar properties. They have no idea if there was some other factor used to determine the price. They will also not include in the calculation transactions that are a result of foreclosure becasue the target price is the loan value not the true value.

California and some other jurisdictions do add another wrinkle. You will need to determine if the transaction will trigger a reevaluation of the property value. In some states the existing laws of the state limited the annual growth of the assessment, but that could now be recaptured if the jurisdiction rules that this is a new ownership:

California Board of Equalization - Change in Ownership - Frequently Asked Questions

How does a change in ownership affect property taxes?

Each county assessor's office reviews all recorded deeds for that county to determine which properties require reappraisal under the law. The county assessors may also discover changes in ownership through other means, such as taxpayer self-reporting, field inspections, review of building permits and newspapers. Once the county assessor has determined that a change in ownership has occurred, Proposition 13 requires the county assessor to reassess the property to its current fair market value as of the date ownership changed.

Since property taxes are based on the assessed value of a property at the time of acquisition, a current market value that is higher than the previously assessed Proposition 13 adjusted base year value will increase the property taxes. Conversely, if the current market value is lower than the previously assessed Proposition 13 adjusted base year value, then the property taxes on that property will decrease.

Only that portion of the property that changes ownership, however, is subject to reappraisal. For example, if 50 percent of the property is transferred, the assessor will reassess only 50 percent of the property at its current fair market value as of the date of the transfer, and deduct 50 percent from any existing Proposition 13 base year value. In most cases, when a person buys a residence, the entire property undergoes a change in ownership and 100 percent of the property is reassessed to its current market value.

Improve this answer

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .