In California, property taxes are based upon the price that you paid for your home. Would it be legal, or even feasible, that when you finally pay off your mortgage, that you sell your home to a confidant (sibling, good friend, relative) for like $1, and then turn around and buy it back from them for $1?..This would then allow you to pay a nominal property tax for those “golden years “.

  • 2
    How sure are you that your "friend" will complete the reversal of the sale?
    – DJohnM
    Jul 13 at 6:31
  • 1
    You're not the 80,000th to think of this kind of schema; long, long ago tax law was amended to forbid them.
    – RonJohn
    Jul 13 at 13:18
  • States such as California and NY are very good at catching tax fraud.
    – Pete B.
    Jul 13 at 13:23
  • Ob(nearly)XKCD Jul 14 at 8:18

No. Only sales at fair market value in a bona fide arms' length sale can set the assessed price for property tax purposes.

Even were this not the case, there's a general rule that a maneuver whose sole purpose is to reduce taxes and has no legitimate economic purpose or impact is treated as if it did not happen.

  • 1
    I think this is a case called The Step Transaction Doctrine Jul 13 at 11:26
  • What if you sell it for 50% assessed value? Could you get the town assessor to come out and re-assess the property?
    – MonkeyZeus
    Jul 13 at 13:01
  • Any below-market sale subjects you to gift-tax considerations. You can probably get the reassessment, but your sale price isn't necessarily going to affect it.
    – chepner
    Jul 13 at 13:16
  • @MonkeyZeus presumably, if that's the best price you can get. But if it's not the best price you can get then they'll just say you cheated.
    – user253751
    Jul 14 at 9:14

If you look at your county/city property records you may find cases where the sales record notes that the sale price isn't to be used for appraisal purposes. This is because it was done to add or remove somebody from the ownership due to marriage, divorce, or death. Usually the price in those cases it is noted as a value of $0.

The record can also show situations where the sale price is due to a forced sale because of a default on the mortgage.

The property tax office will be on the lookout for prices that turnout to be much below what other similar properties are selling for. In some jurisdictions this is to make sure that a non-arms-length transaction doesn't throw off the assessment values of other properties. In jurisdictions like California they are looking for an attempt to dodge taxes.

Selling to a family member would be easy to spot, as would a sale back to the original owner for a similarly low price. A more difficult to spot attempt could result in back taxes, fines or other penalties including jail time if it is discovered.


Estimating the value of homes is already a finely tuned science

As you probably know, there are home-buyer sites where you can input almost any address, and it will tell you the present value of that home, even though it hasn't been on the market in 20 years, based on sale prices of neighboring homes, features (bedrooms, bathrooms, square feet) etc.

So what happens when a sale price is highly deviant, such as a lowball price family-family? That could pull down everyone else's property values, and we can't have that! Nope, that sale price is simply deleted and not used as the basis for pricing norms.

A tax assessor will simply disregard any out-of-gamut sale prices

Remember, in most states, tax assessors don't care what you paid for the house. They are going to assess based on contemporary value, i.e. that same estimated/projected pricing in today's market. In other words, the assessor tells you what your house is worth. If you disagree, you can appeal.

Works the same for California tax assessors. They can rely on estimated pricing to peg the value of your property. They have the option to use the price you actually did pay, but will only do that if it's near (or larger in a rising market).

  • If the model says $450,000 and you paid $440,000, fine.
  • If you paid $500,000 in a seller's market, they'll abide by that too because hey, free $50,000.
  • But if you paid $100,000, forget it - assessment is $450,000.
  • If you paid $700,000 because you're the railroad and you'll later swap that site to CalTrans so they can move the road there, so you can fit your railroad where the road was... well, the assessor knew that you only overpaid to avoid the messy business of eminent domain, and the real value is $450,000.

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