Buying out a sibling of a home that is 50/50%. Reassessment in taxes question

[stacygeorgia]

What is the name of your state? I know we did not handle this the right way years ago. As of now the title on a home is 50/50 with me and my sister. My mother died and years ago we have a notarized letter between my mother, sister and I that I am able to buy our my sister and get 100% of the home. If I can't then we will sell it. My husband and I are able too now. It being sibling to sibling 50% of the value of the house will be reassessed with taxes. 50% of the proposition 13 will be lost due to it now longer being parent to child. Is there any getting out this? Quick claim deed? put the house in a trust now? My husband and I are not going to buy her out for a couple years due to our kids being in high school right now so we have time to figure all of this out I hope. The house is work around 900k and its assessed right now for only $117k from the time my mother purchased it in the last 70's. So it is a BIG DEAL financially in the end.

 

[stacygeorgia]

What is the name of your state? I know we did not handle this the right way years ago. As of now the title on a home is 50/50 with me and my sister. My mother died and years ago we have a notarized letter between my mother, sister and I that I am able to buy our my sister and get 100% of the home. If I can't then we will sell it. My husband and I are able too now. It being sibling to sibling 50% of the value of the house will be reassessed with taxes. 50% of the proposition 13 will be lost due to it now longer being parent to child. Is there any getting out this? Quick claim deed? put the house in a trust now? My husband and I are not going to buy her out for a couple years due to our kids being in high school right now so we have time to figure all of this out I hope. The house is work around 900k and its assessed right now for only $117k from the time my mother purchased it in the last 70's. So it is a BIG DEAL financially in the end.

We are in California

 

[adjusterjack]

The house is work around 900k and its assessed right now for only $117k from the time my mother purchased it in the last 70's. So it is a BIG DEAL financially in the end.

Then it should be worth talking to a local tax attorney who is familiar with the issue.

 

[zddoodah]

we have a notarized letter between my mother, sister and I that I am able to buy our my sister and get 100% of the home. If I can't then we will sell it.

This is awfully vague, but I'll assume this is a valid contract that gives you the right to buy -- and imposes on your sister the obligation to sell -- her interest in the property (presumably for fair market value). Notwithstanding this assumption, I'd be curious whether your sister might not have an argument that the contract lacks consideration. Of course, if she's willing to sell, it's a moot point.

t being sibling to sibling 50% of the value of the house will be reassessed with taxes. 50% of the proposition 13 will be lost due to it now longer being parent to child. Is there any getting out this?

It is not clear to me whether a transfer from one joint tenant or tenant in common to the other will trigger reassessment, but I've never heard of only "50% of the value of [a property being] reassessed." You'll want to consult with a local real estate lawyer (not a tax attorney) about this.

Quick claim deed?

No such thing exists. There is such a thing as a quitclaim deed, and I expect that's the sort of deed your sister would want to use, but it has no bearing at all on the tax issue.

we have time to figure all of this out I hope. The house is work around 900k and its assessed right now for only $117k from the time my mother purchased it in the last 70's. So it is a BIG DEAL financially in the end.

All the more reason not to rely on anonymous strangers on the internet and, instead, pay for reliable advice from an attorney.

 

[Taxing Matters]

You'll want to consult with a local real estate lawyer (not a tax attorney) about this.

Attorneys in several areas of practice can assist with California real estate tax issues, and Prop 13 specifically. Tax attorneys would be among them. I deal with local property tax matters in my state and property tax is not as big a deal here as in California. Of course real estate attorneys and estate planning attorneys may also be helpful with this sort of thing.

 

[stacygeorgia]

Yes, it's true 50% of the value of the home will be assessed. I talked to two real estate attorneys about 2-3 years ago. My mother added me to the deed as 50/50 ownership about 20 years ago, so I was safe with Prop. 13 and taxes if she was to pass away. I would aquire 100% ownership. Things changed when she got ill and she quick claimed her 50% to my sister, taking her off the deed and off the title. I got different advice from differnt attorneys just wanted to ask a few questions here.

 

[zddoodah]

she quick claimed her 50% to my sister

Again, there's no such thing as "quick claim." A quitclaim deed is a deed by which the grantor transfers an interest to the grantee without any warranties of any kind. Essentially, a quitclaim deed says, "If I have any interest in this property -- and I'm not saying I do, and you should not assume I do -- I transfer that interest to you."

I got different advice from differnt attorneys just wanted to ask a few questions here.

Anonymous strangers on the internet who haven't seen any relevant documents -- and most of whom are not California attorneys -- are not a good source to resolve a conflict.

 

[Zigner]

Yes, it's true 50% of the value of the home will be assessed. I talked to two real estate attorneys about 2-3 years ago. My mother added me to the deed as 50/50 ownership about 20 years ago, so I was safe with Prop. 13 and taxes if she was to pass away. I would aquire 100% ownership. Things changed when she got ill and she quick claimed her 50% to my sister, taking her off the deed and off the title. I got different advice from differnt attorneys just wanted to ask a few questions here.

Are you going to reside in the home?

 

[stacygeorgia]

Thank you all. I'm just trying to avoid the house being reassessed when I buy her out in a couple of years. We are both on the deed now 50/50. I will of course consult with a real estate attorney. 117k to current value of almost 950K will be a HUGH jump in property taxes. My husband I are will buy her out with the money we get from the sale of our current home we live in if that make any different.

 

[quincy]

Thank you all. I'm just trying to avoid the house being reassessed when I buy her out in a couple of years. We are both on the deed now 50/50. I will of course consult with a real estate attorney. 117k to current value of almost 950K will be a HUGH jump in property taxes. My husband I are will buy her out with the money we get from the sale of our current home we live in if that make any different.

Is anyone living in the house right now? Is it rented out?

Who is currently paying the taxes, insurance, maintenance on the property? All of that will need to be worked into any split.

You and your sister really need to sit down with an experienced real estate attorney for a personal review to determine how best to fashion the transfer of interest in the property.

 

[stacygeorgia]

My sister is living in the house. There is a side house on it and my son, wife and 3 grandkids are living in it. They split all of the bills, taxes, etc. We have a norarized agreement that I buy her out less any mortages on it, and 50% of upgrades done to it. The agreement also says that I can buy her out in 2024. That is when my twins are out of high school. We both agreed on this a few years ago. We should of probably put the house in a trust before my mom died. I was told that would of protected proposition 13. If I can't buy her out then the house will be sold. I will be able to because my husband and I owns a house almost outright he inheriated 15 years ago, we live in now so that will not be a problem in 2024. My issue is keeping proposition 13 for property taxes benefit. I talked to the tax person at the county and I fall under prop 13 when my mom put me on the deed at 50/50 20 years ago. Then for medical reasons he quit clamied her 50% to my sister 8 year ago. Now it being 50/50 sister and I on the deed/title. County tax person said when I buy her out there is not sibling to sibling tax protection with prop 13. The house will be reassessed when I buy her out taking 100% of the home but 50% of the value will be adjusted for prop 13. I talking to a couple real estate attorney and they said that is true. I have a few years to see if there is anything I can do. LLC? Trust?

 

[quincy]

My sister is living in the house. There is a side house on it and my son, wife and 3 grandkids are living in it. They split all of the bills, taxes, etc. We have a norarized agreement that I buy her out less any mortages on it, and 50% of upgrades done to it. The agreement also says that I can buy her out in 2024. That is when my twins are out of high school. We both agreed on this a few years ago. We should of probably put the house in a trust before my mom died. I was told that would of protected proposition 13. If I can't buy her out then the house will be sold. I will be able to because my husband and I owns a house almost outright he inheriated 15 years ago, we live in now so that will not be a problem in 2024. My issue is keeping proposition 13 for property taxes benefit. I talked to the tax person at the county and I fall under prop 13 when my mom put me on the deed at 50/50 20 years ago. Then for medical reasons he quit clamied her 50% to my sister 8 year ago. Now it being 50/50 sister and I on the deed/title. County tax person said when I buy her out there is not sibling to sibling tax protection with prop 13. The house will be reassessed when I buy her out taking 100% of the home but 50% of the value will be adjusted for prop 13. I talking to a couple real estate attorney and they said that is true. I have a few years to see if there is anything I can do. LLC? Trust?

First, I believe under Proposition 13 currently, $1 million worth of a property’s value is excluded from reassessment. You say the property has a value under $1 million. Also, Prop 13’s reassessment is triggered when there is a change of ownership and ownership is not exactly being “changed.” You are retaining ownership. With a quitclaim deed, the interest in the property held by one owner is simply being transferred to another owner.

Prop 19 went into effect on February 16 this year, and that has mucked things up a bit. For Prop 19’s effect on Prop 13 and on your jointly owned property, you will want to sit down with a real estate law professional who can help you figure out how best to handle the transfer of interest in the property to reduce or eliminate any tax penalties.

 

[quincy]

Here is a link to Proposition 19 and what it can mean for inherited property:

https://ballotpedia.org/California_Proposition_19,_Property_Tax_Transfers,_Exemptions,_and_Revenue_for_Wildfire_Agencies_and_Counties_Amendment_(2020)

 

[Taxing Matters]

Also, Prop 13’s reassessment is triggered when there is a change of ownership and ownership is not exactly being “changed.” You are retaining ownership. With a quitclaim deed, the interest in the property held by one owner is simply being transferred to another owner.

In other words, there is a change of ownership with respect to the half interest being transferred.

 

[quincy]

In other words, there is a change of ownership with respect to the half interest being transferred.

Okay ... I guess I am not looking at the quitclaiming of interest from one owner to another as a change in ownership, much as a quitclaim of interest in property from one spouse-owner to another spouse-owner in a divorce would not be viewed as a change of ownership. I guess I am not sure how the quitclaim here would be seen.

However it’s viewed, it is important for a whole host of reasons beyond that, that a real estate attorney in California is consulted. It is always possible that yet another proposition will be enacted in California before stacygeorgia and her husband are prepared to act on the change in ownership.