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Avoid Transfer Tax, Recording Fee and Property Tax Reassessment
1
Summary
Generally, when recording a new title, the County charges a recording fee, applies a tax to transfer the property, and reassesses the property for purposes of property tax based on value. This blog explains how a person can reduce or minimize these taxes / fees. Remember, the Deed should be notarized, a Change in Ownership form must be filed, and a Documentary Transfer Tax Affidavit must accompany the recording.
The Recording Fee
Government Code section authorizes a County to charge a recording fee at the time an instrument pertaining to real property is recorded. The minimum fee is $75 and the maximum fee is $225 and the total fee actually charged depends on the total number of documents recorded pertaining to one transactions.
Exceptions to the Recording Fee
There are certain circumstances that excuse payment of the Recording Fee. The exception must be stated on the face of the document.
The Transfer Tax
Revenue and Taxation Code section allows each (a) the County and (b) the City where real property is located to charge a Transfer Tax when a document pertaining to the transfer of such property is recorded. Note this is possibly two separate taxes - one charged by the County [R&T section (a)] and another tax charged by the City [R&T section (b)], but, if both entities charge the tax, a credit for the county tax is allowed against the City tax.
The rate of the County Transfer Tax is “...fifty-five cents ($0.55) for each five hundred dollars ($500) or fractional part thereof.”
The rate of the City Transfer Tax is “...half of the [fifty-five cents ($0.55) - meaning twenty-seven and a half cents ($0.275)] for each five hundred dollars ($500) or fractional part thereof.”
Exceptions to the Transfer Tax
There are certain circumstances that excuse payment of the Transfer Tax, under Revenue and Tax Code sections . Specific Counties may also have other exceptions.
Reassessment & increase of Property Tax
Under the authority of the California Constitution, Chapter
, section
, Revenue Code section
authorizes a County to impose an ad valorem property tax annually on ownership of real property. Ad valorem means that the tax is imposed as a percentage of the assessed value. Although the County is limited on the amount that the Property Tax imposed on the same owner can be increased in any given year [Const., Chap. , section
], when the Property is transferred, the County can and will reassess the Property Tax and impose a new property tax based on the value at the transfer. Certain transfers are excepted from reassessment & increase of Property Tax.
Exceptions to Reassessment and increase of Property Tax
There are certain circumstances where reassessment does not occur. The two broad categories are where no transfer is considered to have occurred R&T sections
No Change in Ownership Occurred; No Reassessment
Refinancing
Refinancing a real estate loan is not considered a change in ownership, and should not result in a reassessment. There is no form to complete for this exclusion. The Assessor will typically request additional information from the property owner to verify that the transaction was for refinancing purposes only. (ref. Revenue and Taxation Code 62(c))
Transfers between Spouses or Registered Domestic Partners
Refinancing:
Transfers of property between spouses during marriage are excluded from reassessment. Transfers between former spouses after marriage (in connection with a property settlement agreement or dissolution) are also excluded. No form is required. However, additional documentation may be necessary. (Ref. R & T Code Sec. 63)
Even if an exclusion from reassessment is applicable to a transfer, a legal entity must file form BOE-100-B, Statement of Change in Control and Ownership of Legal Entities, with the Board of Equalization reporting the change in control under section 64(c) or change in ownership under section 64(d). The form must be filed within 90 days of the date of change in control or date of change in ownership to avoid the imposition of the penalty under section 482, subdivision (b).
Interspousal and Registered Domestic Partner Exclusions
Any transfer of legal entity interests solely between spouses or registered domestic partners is excluded from change in ownership (reassessment of real property). When a spouse or registered domestic partner acquires control of an entity due to the transfer of entity ownership interests from his or her respective spouse or registered domestic partner, an exclusion from reassessment applies to the property of the entity in which control was obtained. (See Revenue and Taxation Code , and .)
Proportional Transfer Exclusion
Any transfer between an individual or individuals and an entity, or between legal entities, that results solely in a change in the method of holding title to the real property, and in which the proportional ownership interests of the transferors and transferees in each and every piece of real property transferred remain the same before and after the transfer, is excluded from a change in ownership. This is known as the proportional transfer exclusion. (See Revenue and Taxation Code and .)
Affiliated Group Exclusions
The following two types of corporate reorganizations are not a change in ownership:
(1) Any corporate reorganization, where all of the corporations involved are members of an affiliated group, and that qualifies as a reorganization under section 368 of the Internal Revenue Code and is accepted as a nontaxable event by California statutes is excluded from change in ownership. (See Revenue and Taxation Code .)
(2) Any transfer of real property among members of an affiliated group is excluded from change in ownership. (See Revenue and Taxation Code .)
Affiliated group means one or more chains of corporations connected through stock ownership with a common parent corporation if both of the following conditions are met:
(1) The voting stock of the corporation making the transfer and the voting stock of the transferee corporation are each owned 100 percent by a corporation related by voting stock ownership to a common parent corporation; and
(2) The common parent corporation directly owns 100 percent of the voting stock of at least one of corporation in the chain(s) of related corporations. (See for an example.)
By its express language, this exclusion is limited to corporations and therefore does not apply to other entities such as limited liability companies or partnerships. For the reorganization exclusion, the transfer must meet all of the requirements of Revenue and Taxation Code section 64(b), and the taxpayer must furnish supporting documentation upon request.
Note on Trust Transfers– Legal Entity Interests Held by Trust
Although, a transfer involving a trust that holds interests in a legal entity is not an "exclusion" (such as the proportional interest exclusion); certain transfers of a trust do not result in a change in control of a legal entity under Revenue and Taxation Code Section 64(c) or cumulative change in ownership under Section 64(d). Below is certain information about transfers by trustor of trusts. For additional information, refer to page 47 in .
Irrevocable Trusts – The transfer by the trustor of an ownership interest in a legal entity holding an interest in real property into a trust in which the trustor-transferor is the sole present beneficiary, or into a trust in which the trustor-transferor retains the reversion and the present beneficial interest of any other person does not exceed 12 years is excluded from change in ownership. (See .)
Revocable Trusts – The transfer of real property or an ownership interest in a legal entity holding an interest in real property by the trustor to a trust which is revocable by the trustor is excluded from change in ownership. However, a change in ownership does occur at the time that a revocable trust becomes irrevocable unless the trustor-transferor remains or becomes the sole present beneficiary or unless otherwise excluded from change in ownership (interspousal or registered domestic partner exclusion). (See .)
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