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PRESENTAT ION TO 
CalCPA Real Estate Conference 
Property Tax: Case Study 
Christopher Karachale, Hanson Bridgett LLP 
Oct...
To p i c O v e r v i e w 
• Establishing Base Year Value 
• Proposition 8 
• Assessment Date 
• Classification of Construc...
PART I 
Base Year Value
E s t a b l i s h i n g B a s e Ye a r Va l u e 
R&TC § 110.1(a) 
BASE YEAR VALUE IN REAL PROPERTY 
SET BY: 
1. 1975 Lien ...
E s t a b l i s h i n g B a s e Y e a r V a l u e : 
PROP. 13 
UNDER PROP 13 
Real property that has not been sold or 
und...
E s t a b l i s h e d B a s e Y e a r V a l u e : 
Change of Ownership 
R&TC § 110.1(a)(2) 
If property sold in 2010, base...
Except ions to Reassessment 
Certain transactions are 
statutorily exempt from 
the general changes of 
ownership rules 
7...
Parent/Child Grandparent/Grandchild Exclusion 
R&TC § 63.1: Two Types of 
Transfer Excluded: 
1. Transfers of primary resi...
Replacement residence for senior citizens or disabled person 
R&TC § 69.5: Allows 
excluded transfer provided: 
1. Owner i...
Adjusted Base Year Value 
R&TC § 51(a)(1)(D): Base 
year value can never 
increase more than 2% of 
prior year’s adjusted ...
PA RT I I 
Proposition 8
Proposition 8 
R&TC § 51(a)(2): 
A reduction in the value of 
property for assessment 
purposes is allowed due to 
damage,...
Proposition 8 
Year 2 
Fair Market Value of Property: $550,000 
Adjusted Base Year Value: $510,000 
13 
© HANSON BRIDGETT ...
Proposition 8 
Year 3 
Fair Market Value of Property: $480,000 
Adjusted Base Year Value: $480,000 
14 
© HANSON BRIDGETT ...
Proposition 8 
Year 4 
Fair Market Value of Property: $540,000 
Adjusted Base Year Value: $530,604 
15 
© HANSON BRIDGETT ...
PA RT I I I 
Assessment Date
Lien Date 
R&TC §§ 2192 & 401.3: 
Property’s value is assessed 
on January 1st. 
17 
© HANSON BRIDGETT LLP
Escape Assessment 
R&TC § 531: 
If property has escaped 
assessment, assessor 
required to assess property at 
its value o...
Statute of Limitations 
R&TC § 51.5(b): 
An error or omission in value by the assessor must be 
corrected within 4 years a...
PA RT I V 
Classification of Construction
Real vs. Personal Property 
R&TC §§ 104 & 105: 
Real estate/real property includes 
1. Land 
2. Improvements 
(Buildings &...
Personal Property 
R&TC § 106: 
Personal property includes all property except real estate. 
Examples include: 
1. Equipme...
Exempt Personal Property 
Many statutory exemptions for personal property: 
1. Business inventory: R&TC § 219 
2. Personal...
Business property statement 
R&TC § 441 
If taxpayer has taxable personal property with a total 
cost of $100,000 or more,...
PA RT V 
New Construction Issues
New Construction 
R&TC § 110.1(a)(2): 
When real property is newly 
constructed, base year 
value set on date on which 
ne...
New Construction 
R&TC § 70: 
New base year value established only for 
that portion of the property which is newly 
const...
New Construction - Maintenance 
28 
Rule 463(b)(4): 
Normal maintenance and 
repair are excluded from 
definition of newly...
New Construction – Partial Completion 
29 
R&TC § 71: New construction in 
process on lien date 
1. Appraised as full valu...
Supplemental Assessment 
30 
R&TC § 75.10: 
When a change in ownership 
occurs or new construction is 
completed, assessor...
QUESTIONS? 
Christopher Karachale 
415.995.5863 
Ckarachale@hansonbridgett.com
Current California Property Tax Issues
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Current California Property Tax Issues

Christopher Karachale, Senior Counsel at Hanson Bridgett in San Francisco, advises businesses and individual on a wide range of tax issues, including federal, state and local tax issues.

This presentation discusses California property tax issues and both reviews the general rules, but also provides an update on current issues for each particular topic.

As a threshold matter, California state property tax law is one of the most confusing areas of tax law. Indeed, there are a number of instances where the rules seem simply nonsensical and perversely counter intuitive. Most importantly, there is a fundamental tension between the property tax rules and income tax rules under the R&TC or the IRC. Clients who are familiar with income tax rules often miss or are uninformed about the property tax ramifications of their transactions.

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Current California Property Tax Issues

  1. 1. PRESENTAT ION TO CalCPA Real Estate Conference Property Tax: Case Study Christopher Karachale, Hanson Bridgett LLP October 29, 2014
  2. 2. To p i c O v e r v i e w • Establishing Base Year Value • Proposition 8 • Assessment Date • Classification of Construction (Realty vs. Personal Property) • New Construction 2 © HANSON BRIDGETT LLP
  3. 3. PART I Base Year Value
  4. 4. E s t a b l i s h i n g B a s e Ye a r Va l u e R&TC § 110.1(a) BASE YEAR VALUE IN REAL PROPERTY SET BY: 1. 1975 Lien Date 2. Date on which property is purchased, newly constructed, or changes ownership 4 © HANSON BRIDGETT LLP
  5. 5. E s t a b l i s h i n g B a s e Y e a r V a l u e : PROP. 13 UNDER PROP 13 Real property that has not been sold or undergone new construction since Feb 1975 are said to have 1975 base year value Example: Office Building owned since 1970 Base year value is set by value of building in 1975 $100K 5 © HANSON BRIDGETT LLP
  6. 6. E s t a b l i s h e d B a s e Y e a r V a l u e : Change of Ownership R&TC § 110.1(a)(2) If property sold in 2010, base year value resets to FMV: Example: Office Building sold 2012 Base year value = FMV $2M 6 © HANSON BRIDGETT LLP
  7. 7. Except ions to Reassessment Certain transactions are statutorily exempt from the general changes of ownership rules 7 © HANSON BRIDGETT LLP
  8. 8. Parent/Child Grandparent/Grandchild Exclusion R&TC § 63.1: Two Types of Transfer Excluded: 1. Transfers of primary residence (no limits). 2. Transfers of first $1 million of real property other than primary residence NOTE: Transfer may be by sale, gift or inheritance. 8 © HANSON BRIDGETT LLP
  9. 9. Replacement residence for senior citizens or disabled person R&TC § 69.5: Allows excluded transfer provided: 1. Owner is 55 years old 2. Replacement property is principal residence 3. Replacement property is of equal or lesser “current market value” than original property 4. Replacement property purchased/built within 2 years of sale of original property 9 © HANSON BRIDGETT LLP
  10. 10. Adjusted Base Year Value R&TC § 51(a)(1)(D): Base year value can never increase more than 2% of prior year’s adjusted base year value: Purchase house: Base Year Value $500,000 Adjusted Base Year Value: $510,000 Adjusted Base Year Value: $520,200 Adjusted Base Year Value: $530,604 Adjusted Base Year Value: $541,216 10 © HANSON BRIDGETT LLP
  11. 11. PA RT I I Proposition 8
  12. 12. Proposition 8 R&TC § 51(a)(2): A reduction in the value of property for assessment purposes is allowed due to damage, destruction, depreciation, obsolescence, or other factors causing a decline in value. Year 1 Fair Market Value of Property: $500,000 Adjusted Base Year Value: $500,000 12 © HANSON BRIDGETT LLP
  13. 13. Proposition 8 Year 2 Fair Market Value of Property: $550,000 Adjusted Base Year Value: $510,000 13 © HANSON BRIDGETT LLP
  14. 14. Proposition 8 Year 3 Fair Market Value of Property: $480,000 Adjusted Base Year Value: $480,000 14 © HANSON BRIDGETT LLP
  15. 15. Proposition 8 Year 4 Fair Market Value of Property: $540,000 Adjusted Base Year Value: $530,604 15 © HANSON BRIDGETT LLP
  16. 16. PA RT I I I Assessment Date
  17. 17. Lien Date R&TC §§ 2192 & 401.3: Property’s value is assessed on January 1st. 17 © HANSON BRIDGETT LLP
  18. 18. Escape Assessment R&TC § 531: If property has escaped assessment, assessor required to assess property at its value on the lien date for the year for which it escaped assessment. 18 © HANSON BRIDGETT LLP
  19. 19. Statute of Limitations R&TC § 51.5(b): An error or omission in value by the assessor must be corrected within 4 years after July 1st of the assessment year. R&TC § 532(a): An escape assessment must be made within 4 years after July 1st of the assessment year in which the property escaped taxation. R&TC § 532(b): Assessor has 8 years to obtain escape assessment where taxpayer fails to file appropriate change of ownership form. 19 © HANSON BRIDGETT LLP
  20. 20. PA RT I V Classification of Construction
  21. 21. Real vs. Personal Property R&TC §§ 104 & 105: Real estate/real property includes 1. Land 2. Improvements (Buildings & Structures) 3. Fixtures NOTE: All real property assessed under Prop 13 21 © HANSON BRIDGETT LLP
  22. 22. Personal Property R&TC § 106: Personal property includes all property except real estate. Examples include: 1. Equipment 2. Supplies NOTE: Personal property assessed annually at market value (Prop 13 does not apply) 22 © HANSON BRIDGETT LLP
  23. 23. Exempt Personal Property Many statutory exemptions for personal property: 1. Business inventory: R&TC § 219 2. Personal effects: R&TC § 214 3. Intangible personal property: R&TC § 212(c) 23 © HANSON BRIDGETT LLP
  24. 24. Business property statement R&TC § 441 If taxpayer has taxable personal property with a total cost of $100,000 or more, she must file BOE 571-L • BOE 571- L is due April 1st • Goal of form is to allow assessor to make yearly reassessment. 24 © HANSON BRIDGETT LLP
  25. 25. PA RT V New Construction Issues
  26. 26. New Construction R&TC § 110.1(a)(2): When real property is newly constructed, base year value set on date on which new construction is completed. 26 © HANSON BRIDGETT LLP
  27. 27. New Construction R&TC § 70: New base year value established only for that portion of the property which is newly constructed. 27 • Original house built in 1970: Base year value = $150,000 • New addition in 2014: Base year value of new addition = $75,000 • Total base year value in 2014 = $225,000 © HANSON BRIDGETT LLP
  28. 28. New Construction - Maintenance 28 Rule 463(b)(4): Normal maintenance and repair are excluded from definition of newly constructed. © HANSON BRIDGETT LLP
  29. 29. New Construction – Partial Completion 29 R&TC § 71: New construction in process on lien date 1. Appraised as full value on lien date and 2. Reappraised on date of completion Rule 463.500: Date of completion generally date on which property is available for use by owner © HANSON BRIDGETT LLP
  30. 30. Supplemental Assessment 30 R&TC § 75.10: When a change in ownership occurs or new construction is completed, assessor must reassess property. NOTE: Supplemental assessment calculated based on difference between old base year value and new base year value. © HANSON BRIDGETT LLP
  31. 31. QUESTIONS? Christopher Karachale 415.995.5863 Ckarachale@hansonbridgett.com

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