Property Tax Planning Orange County, CA
Property Tax Planning is important and can lower your tax obligations.

California property values keep going up and up. The high rate of appreciation has led to an increased need of property tax planning. With proper advanced planning, a property owner can save his or her beneficiaries thousands of dollars each year with reduced property tax bills.

In California, property tax is reassessed when there is a change in ownership. This generally happens when the property is transferred. There are many exceptions and exclusions to this rule. One of the most important exclusions is the parent to child exclusion.

Under the Parent-Child exclusion, the child may exclude a personal residence (the parent’s home) and $1 million of assessed value of other real property. Keep in mind assessed value is different than fair market value. Assessed value is the original purchase price plus or minus any adjustments made by the assessor.

For example, let’s take a single mom with a house that she bought for $2 million and a vacation home she bought for $800,000. When she passed away, the house had an assessed value of $2.5 million (her original cost basis plus annual increases under Proposition 13) and a fair market value of $5 million. Her vacation home has an assessed value of $900,000 and a fair market value of $1.5 million.

When her son receives the property, the parent child transfer exclusion will apply and exclude property tax reassessment on the properties. Her house is completely excluded from reassessment, no matter the value. He may also exclude $1 million of other property tax she owned. The vacation house is worth $1.5 million when he receives it, but the assessed value is only $900,000. The $900,000 is under $1 million and therefore the vacation home is also completely excluded from reassessment.

What does this mean in real dollars? Under California Proposition 13, a county can charge property tax at 1% plus any voter approved taxes or assessments. With the parent child exclusion used, the son will pay tax at 1% of the assessed values of $2.5 million and $900,000; or $34,000. Without the exclusion, the house would have an assessed value of $5 million, the fair market value of the house at the date of transfer. The vacation house would have an assessed value of $1 million. The son would pay tax at 1% of the fair market values of $5 million and $1 million; or $60,000. The exclusion saves the son $26,000 of property taxes each year!

This example shows just one of the many ways property tax planning can save you money. By properly planning ahead of time and knowing what forms to fill out when an excluded transfer occurs, you and your children can save money every year on lower property taxes.

For more information on property tax planning contact your LSL Advisor at 714.569.1000.

Author: Suzanne Lieber, Esq.

Want more content like this?


Sign up to receive our monthly newsletter straight to your inbox.