Tax/Trust Question in California (Proposition 13)
Member since 2021 · 7 posts · 1 vote
To whom tax attorney's or CPA's...
Would it be more advantageous to purchase a home in California from my grandmother and therefore she add me to on title; or wait till she passes (she is 99 yrs old) and then simply buy the home from the executor (my aunt) outright at full price? Prices are declining but interest rates are going up. Also, the current property tax on this property is $800/annually and if I buy it outright from my aunt, the annual property tax will increase to $1200/monthly. Also, note how Proposition 13 might be a factor in determining best option.
This question stems from me wanting to buy now however what are the other pro's/con's to this?
I am not an attorney or cpa and as always, don't ever blindly follow any advice you get on a public forum. But, I did work for the LA County Assessor a lifetime ago and know a little about prop 13 and less about the newer props passed.
But, there was that pesky lil prop passed last year, Prop 19, which severely limited the parent to child transfer property tax reassessment exclusion. My understanding is, that a parent to child tfr or grandparent to grandchildren tfr (only if all parents of those grandchildren are deceased), or inheritance from parent, may not trigger a reassessment as long as the child/grandchild is using the property as their primary residence.
So, if you plan on using it as your primary residence you may be able to "inherit" the low property tax base value, but if/when you stop using it as your primary residence, it can be reassessed to current market value. So, the property tax concern may not be as much of an issue in your decision, if you are not planning on using it as your primary.
And, in my non-CPA experience, it is better to inherit the stepped-up tax basis on the property when the family member passes. That could be the difference of 100k's+ in taxable gains and if you aren't living in the property when it tfrs to you, it can get reassessed anyway!
If her gain will be more than $250k (assuming her husband has already passed.). Then she will save at least a small boatload of taxes by not selling before her passing.
Is she still living there? If not maybe you could set the price now, agree with the rest of the family the would take payments for a few years while you worked on getting better financing.
Maybe someone can weigh in on a great reason that’s California specific to do it well but the biggie to me is I’m assuming she has more than a $250k gain.
You mention that property taxes would increase if purchased from your aunt, but property taxes are likely to increase if purchased from your grandmother as well, so that may be a moot point to consider for your question. Unless you can qualify for the parent-child or grandparent-grandchild exclusion, you may want to evaluate how a property tax increase changes your willingness to purchase and timing for doing so.
Note that if your grandmother holds the real property until her death, she is likely to receive a basis step-up in the residence, eliminating capital gains for the heirs upon sale versus possible capital gains to your grandmother if sold during her life. Depending on if your grandmother has lived in the residence long enough and meets other requirements of IRC 121, as well as the amount of the gain, she may avoid capital gains if sold during life as well. In that instance, interest rates and pricing is probably a more important consideration.
Depending on family relations and the mental competency of your grandmother, you may be safer in waiting for your aunt to be the seller if your grandmother does not have competency to enter into contracts.
*This post does not create an attorney-client or CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
I am not an attorney or cpa and as always, don't ever blindly follow any advice you get on a public forum. But, I did work for the LA County Assessor a lifetime ago and know a little about prop 13 and less about the newer props passed.
But, there was that pesky lil prop passed last year, Prop 19, which severely limited the parent to child transfer property tax reassessment exclusion. My understanding is, that a parent to child tfr or grandparent to grandchildren tfr (only if all parents of those grandchildren are deceased), or inheritance from parent, may not trigger a reassessment as long as the child/grandchild is using the property as their primary residence.
So, if you plan on using it as your primary residence you may be able to "inherit" the low property tax base value, but if/when you stop using it as your primary residence, it can be reassessed to current market value. So, the property tax concern may not be as much of an issue in your decision, if you are not planning on using it as your primary.
And, in my non-CPA experience, it is better to inherit the stepped-up tax basis on the property when the family member passes. That could be the difference of 100k's+ in taxable gains and if you aren't living in the property when it tfrs to you, it can get reassessed anyway!
Thank you all for your time and response... very much appreciated.
Grandmother has not lived in residence for over 40 years. I on the other hand have lived in home as primary residence for over 7 years and counting. House was built in 1952 for $19k. Its now worth $1.1MM. She should receive step up basis which is why the family trust is waiting till she passes to sell everything.
Interest rates are not huge concern at the moment, I have access to employee bank discount rates through my wife. And I believe eventually interest rates will eventually fall. Grandmother mental capacity is not good. She is 99 and my aunt is the executor and pay all bills and manages her trust for her. She is in assisted living community and i'm guessing she will eventually go straight to hospice within the next 6 months to year. Katie, you sound like you know a lot about this... would you be open to talking offline a bit more?
Brad, I am not familiar with Prop 19 and the changes that this took place or how they relate to this issue. Are there advantages? I do not qualify for Grandparent to grandchild transfer, and unfamiliar with inheritance and how this works with avoiding reassessment if a reassessment will be done either way once she passes... again, why I'm wondering if I can be added to title/deed would help me in this case.
Are your parents no longer living? You could benefit from Grandparent to grandchildren if we #FiXProp19. For aunt... there will be a reassessment.
Help us to #FiXProp19 by #RepealTheDeathTax. Download, print, wet ink sign and submit. Signer can be Circulator (witness for self and others). Complete BOTH sections. We need 1.3 million signatures to get on November 2024 ballot. Volunteer and Download petition at ForCalifornians.com or RepealTheDeathTax.com.