How does Community Property affect property tax when someone passes away?
June 26, 2012 4:46 PM   Subscribe

How is property tax assessed for houses that are owned as community property w/right of survivorship if one of the spouses passes away? I know that in California, at least, the value of the property is completely stepped up for purposes of calculating capital gains tax. But is property tax then also re-assessed at the stepped up value?

e.g. a married couple buys a house for $100k (yeah right). Let's say one of the spouses dies when the house is worth $500k, but because California Prop 13 limits the property tax assessment increase every year, it's valued at only $250k for property tax purposes.

So in this case, if the surviving spouse sells the house, there's no capital gains because the basis price is $500k. But if the surviving spouse keeps the house, is the property tax still assessed at $250k? Or does it jump to $500k due to the property being "transferred"?
posted by edjusted to Law & Government (5 answers total)
 
Best answer: Just googling around a bit, I came across this . I can't vouch for the source, but it suggests that if title is held as community property with right of survivorship, the survivor receives, not only a full stepped up cost basis, but also immunity from reassessment.
posted by namret at 5:19 PM on June 26, 2012


Best answer: Property assessments don't generally have anything to do with property sales. Market price and assessed price can be radically different, especially if the market is turning over quickly.

But I can't for the life of me see why the fact that the house was subject to dual ownership at one point would have anything to do with it. The municipality isn't going to send out two tax bills, one to each spouse, it's going to send out one tax bill and let the owner(s) sort it out themselves. All it wants is to get paid.

If the surviving spouse keeps the house, the property tax will still be assessed at $250k until the next assessment. Unless California is really weird--and it might well be--nothing you've described would trigger any kind of special reassessment. Again, assessment for tax purposes and sale price are almost entirely unrelated in most states, and I don't know any reason why California would be different.
posted by valkyryn at 6:11 PM on June 26, 2012


Response by poster: The reason I'm asking is because when you BUY a house in CA, your property tax assessment is now based on the price you paid. So from my example, if someone buys the $500k house, even if the former owner was paying taxes based on a $250k assessment, the new owner now pays taxes based on $500k.

So if capital gains tax would be based on a "buy" price of $500k, it seems a bit too good to be true that property taxes would continue to be assessed at the old $250k "value."

So I guess another way to ask my question is does a "transfer" of property to the surviving spouse considered the same or considered different than if the surviving spouse "bought" the property from the decease for purposes of calculating property tax?
posted by edjusted at 6:25 PM on June 26, 2012


Response by poster: Ok, I just carefully read the link @valkyryn pointed to and it does say that for Community Property "The property taxes will not be reassessed on the death of the first spouse." I guess unless someone has any info to the contrary, that's the answer. Thanks!
posted by edjusted at 6:28 PM on June 26, 2012


Best answer: Here's something more official.

Inter-spousal transfers:
All transfers between spouses during the marriage are excluded from change in
ownership treatment.
Additionally, transfers between spouses that are pursuant to a
property settlement or dissolution of marriage agreement do not trigger reassessment
treatment.
Finally, transfers between spouses that occur because of the death of a spouse
are also excluded from reassessment.

There is no claim form required to be filed with the respective assessor offices by either
spouse to establish entitlement to the inter-spousal exclusion. However, supporting
documentation, such as a divorce decree, settlement agreement, or death certificate can
be requested by an assessor office in the county in which the property is located
following such transfers.

posted by calwatch at 9:40 PM on June 26, 2012


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