Real Estate TaxesBlindly going into a transaction or exchange could cost you tens of thousands of dollars or more.
We also assist with property exchanges under the IRS Tax Code section 1031. If your exchange meets 1031 requirements, your tax liability could be reduced to as little as zero dollars due at the time of the transaction. It is a complex section that has been updated by Congress in 2004 and the IRS 2008, so it is essential that you work with a professional who is informed and dedicated to your best interests.
Federal and California State Tax laws are always changing. Mendes Weed, LLP is experienced in providing up-to-date advice for property tax concerns in California.
Property tax law handles issues surrounding property and real estate taxes at the state and local level, including ad valorem taxation. Real Estate Law covers real estate Assessment, real estate valuation, and tax collection.
In real estate, a 1031 exchange is a swap of one investment property for another that allows capital gains taxes to be deferred. It allows you to exchange real and personal property held as an investment, or for use in a trade or business, with property of like-kind and defer capital gains and recaptured depreciation taxes.
There are four main types of like kind exchanges investors can choose from. The most common like-kind exchange types include the simultaneous, delayed, reverse, and construction or improvement exchange. Although real property outside the U.S. generally does not qualify for 1031 exchange treatment, there are limited exceptions.
To obtain the tax benefit of a 1031 exchange, you must identify the replacement property within 45 days of the sale of the relinquished property and complete your new purchase within 180 days. A third-party “qualified intermediary” must be used to safeguard the exchange and to ensure that you are not deemed to have received the proceeds from the sale, either directly (“actual receipt”) or indirectly (“constructive receipt”).
A properly managed 1031 exchange will offer tax deferral – not tax forgiveness. The deferred taxes will eventually need to be paid unless you continually invest in new properties throughout your lifetime and pass the property on to your children at your death. If your exchange meets 1031 requirements, your tax liability could be reduced to as little as zero dollars due at the time of the transaction. It is a complex section that has been updated by Congress in 2004 and the IRS 2008, so it is essential that you work with a professional who is informed and dedicated to your best interests
Property Tax Appeal Basics
For most property tax cases, an assessment appeal, guided by a property tax appeal professional is the way forward. The property taxes you pay are based on your property’s assessed value, as determined by your county assessor. If you disagree with the assessor’s value, you can usually appeal that value to your local assessment appeals board or county board of equalization. The first thing that needs to be done is to conduct a thorough analysis of the property to determine your property’s fair market value. The fair market value is based on the sales of comparable properties and then compared with county records to determine whether or not the assessed value is accurate. If the value is inflated, an assessment appeal can be filed with the County Assessor’s Office. A low reassessment gets you the biggest savings in property tax. If they refuse to reduce the assessed value to an accurate amount, we appeal to the Assessment Appeals Board or to the County Superior Court.
Property Tax Reassessments and Proposition 13
On June 6, 1978, California voters overwhelmingly approved Proposition 13, a property tax limitation initiative. It effectively reduced and set the property tax rate in the state to 1% of a property’s value with a small increase each year up to a maximum of 2% regardless of appreciation. Property tax reassessments are made, however, whenever there is a change of ownership or new construction on a property.
There are limited exceptions to the general rule, but they may be lost if the transaction is not properly structured. For example, parents can pass their house to their children without a reassessment. However, exclusions are not automatic; if one child then buys out another, the benefits are lost and the property will be reassessed. Through careful estate planning and the use of a revocable living trust, the parent’s estate planning objectives can be met without a property tax increase.
Homeowners aged 55 and older and those who are permanently or severely disabled are exempt from property tax reassessments. In addition, they also have a one-time exemption from reassessment for a replacement residence in the same county or in another county with a similar ordinance.
Real Estate Tax Attorney Resources
The tax litigation and family law firm Mendes Weed, LLP successfully argued a case in front of California’s Office of Tax Appeals, one of the 1st 12 cases heard by the court. There is a complete write up about it on JDSupra titled “California’s Changing Approach to Like-Kind Exchanges”
California Tax Law Specialist
Partner Christina Weed has years of experience helping businesses and individuals with their complex California tax litigation issues. She is a licensed attorney with an LL.M. in Taxation from the University of San Diego and a Bachelor’s Degree in Accountancy. She serves as Chair of the Tax Section of the Contra Costa County Bar Association and is also a member of the Estate Planning Council Diablo Valley and the Tri-Valley Estate Planning Council.
In 2018, Christina became one of the first lawyers to argue a case in front of California’s Office of Tax Appeals.
Christina has been designated a Certified Specialist in Taxation by the State Bar of California.
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