Wondering how to remove a parent from a property title without triggering a reassessment by the county tax assessor? There are a number of reasons why you may need to remove a parent from title, and thanks to Proposition 58, it is possible to do this in the state of California without an increase in annual property taxes or a supplemental tax fee, and this is how!
1 For starters, you’re going to need a quitclaim deed. A quitclaim deed is a legal document that is used to either transfer ownership of jointly owned property to just one of the owners, or from one family member to another. It is simply a document in which your parent or whomever you are acquiring property from is literally “quitting” any interest (or ownership) they have in the property, and giving it all to you. You can find a quitclaim deed online on your county website, a title insurance company website, or from a legal document website.
Before we move on, please note that in most situations, a quitclaim deed is only used when transferring property between spouses, and family members because it does not protect you from being held responsible for future ownership claims that might be made against the property, and therefore would not be the best option in a typical home purchase. Always be sure to contact a Real Estate Attorney for guidance on your specific situation.
2 By filing your quitclaim deed, you will trigger Proposition 13 to go into effect. Proposition 13 allows the county assessors office to discover any transfer of ownership or interest in real property by way of sale, purchase, gift, or inheritance and will automatically do a reassessment or reappraisal of the property based on the current fair market value as of the date ownership changed.
• At this point, the property taxes will increase (or in some very rare cases decrease)
• A supplemental tax bill will be issued to the new owner who will be liable for paying annual property taxes on the new assessed value of the property in addition to the one time supplemental taxes
What is a Supplemental Tax?
Supplemental taxes are based on the difference between the new assessed value of the property and the old assessed value of the property. The tax amount on that difference can climb pretty high depending on your situation, and when combined with the hit of new, and higher annual property taxes people are often caught off guard and a bit upset.
Here’s an Applicable Example to make that more clear. Your parents purchased their property in San Diego County when you were a child for an assessed value of $104,000 but the properties new assessed value in 2017 is $904,000.
If you file your quitclaim deed with the county recorders office, and do nothing more, you will be liable for paying a supplemental tax on $804,000 which amounts to several thousands of dollars out of your pocket. Yikes!
When that supplemental tax is compounded with the addition of the annual property tax on the newly assessed value of $904,000 you will be wishing you were only paying taxes on the original $104,000 assessed value.
To avoid paying supplemental taxes all together, and to keep your annual property taxes at the old assessed value, it is definitely worth doing a little extra leg work by filing out an extra form.
3 The form that you will want to file to ensure that a reassessment is NOT done on your property is called a “Claim for Reassessment Exclusion for Transfer Between Parent and Child.”
• This form is not automatically sent or offered to you, and the exclusion is not automatically given to you.
• You must file this Claim for Exclusion in a timely manner in order to be exempt from the taxes.
• You can find a copy of this form on your local county website. For more information on the intricacies of Proposition 58, and this form you can click here.
• It is important to file the Claim for Exclusion as soon as possible after the date of death, or when the property transfer is complete to ensure that any confusion with the county assessors office is alleviated.
• After this form is submitted and accepted by the assessors office it will eliminate a reassessment and increase in property taxes when the property is being transferred from parent to child, grandparent to grandchild (only possible when both parents of the grandchild are deceased), or spouse to spouse.
Why You Might Be Removing Your Parent(s) From the Property Title
• Your parents went on title to help you qualify for a loan to purchase your first home
• You purchased an investment property together
• Your parents have decided to downsize now that you have moved out, and are starting your own family
• Your parents left their primary, income, or vacation property to you in a will or trust
4 If you are going through this process after your parent is deceased, and the property was left to you by a will or trust, then you must include a copy of the will or trust when you file this form.
For the purposes of this form, California considers a “child” of the parent to be; natural children, adopted children (if adoption was complete before age 18), step children (if parents are still/were still married at time of death), foster children, and daughter/son-in-laws which makes it much simpler in todays loose definition of “family.”
More Tidbits on a Claim for Exclusion
• The Claim for Exclusion applies to primary properties with an unlimited value
• However, if your parent is being removed from title on one or more second properties (income, vacation, etc) then the cumulative value of these other properties must not exceed $1M
• This $1M is based on the base value of real property transferred by the transferor (your parent), and not the transferee (you)
To clarify with an example… Your mother filed a quitclaim deed in 2015, giving you her $1M vacation home in Napa. She then filed another quitclaim deed in 2016 giving your brother her $1M vacation home in San Francisco.
Your brother will not qualify for the Claim for Exclusion because your mother maxed out her $1M exclusion on the property she gave to you.
If you are the only one acquiring properties from your parent, it may be helpful to know how much of the $1M you have used, and you can track this by writing a request to the Board of Equalization and providing them with a statement of what you want to know, your name, social security number, and return address.
Unfortunately, if you have a sneaky parent giving property to your siblings there is no way to check and see how much of the $1M exclusion they have used unless you are the trustee of your parents trust, or executor of their will or estate.
Overall, the Claim for Reassessment Exclusion for Transfer Between Parent and Child is an excellent tool in helping you to keep money in your pocket to use down the road to make improvements to your new property, and increase the value even more! Please note that we are not claiming to be legal professionals and we highly recommend that you seek guidance from a Real Estate Attorney should you have questions about how to complete this process.
