How Does California Law Affect Property Taxes on Inherited Property?

Question from Peaches, How Does California Law Affect Property Taxes on Inherited Property?

Answer from AI:

When you inherit property in California, the property tax implications can be complex, especially if you plan to make changes to the property or share ownership with others. Let’s break down the key points regarding property taxes under California law, specifically focusing on AB1099 and related regulations.

Understanding AB1099 and Property Taxes

AB1099 is a California law that affects property taxes on inherited properties. Generally, when you inherit property, the property tax basis is reassessed to the current market value. However, there are specific rules and exceptions that can apply.

Renting Out Inherited Property

If you decide to rent out an inherited property, the property tax rate is typically reassessed to reflect the current market value. This means that the property taxes you pay could increase significantly compared to the taxes paid by the previous owner.

Building a House on Inherited Property

If you choose to build a house on the inherited property, the tax implications can vary depending on how you fund the construction and who holds ownership of the property.

Building the House by Yourself

If you build the house entirely by yourself, the following points are relevant:

• The property will be reassessed to reflect the new construction’s market value.
• You will be responsible for the increased property taxes based on the new assessed value.
• The reassessment will consider the value of the land and the new structure.

Partnering with Friends to Build the House

If you partner with three friends to fund the construction, the tax implications can be different:

1. Ownership Structure: The way you structure ownership will affect property taxes. If you form a partnership or a limited liability company (LLC), the property may be reassessed based on the new ownership structure.
2. Reassessment: The property will still be reassessed to reflect the new construction’s market value. However, the reassessment may also consider the change in ownership if the property is transferred to a partnership or LLC.
3. Property Tax Responsibility: The property tax responsibility will be shared among the partners based on the ownership agreement.

Consulting a Legal Professional

Given the complexity of property tax laws and the potential for significant financial implications, it is crucial to consult with a legal professional or a tax advisor. They can provide personalized advice based on your specific situation and help you navigate the legal requirements.

Additional Resources

For more information on property taxes and inheritance laws in California, you can refer to the following resources:

• California Board of Equalization – Change in Ownership FAQs
• California Franchise Tax Board – Property Tax Information

Remember, while this information provides a general overview, it is not a substitute for professional legal advice. Always consult with a legal professional to understand how the laws apply to your specific circumstances.