TL;DR

The most costly property tax transfer in California is the change in ownership reassessment, which triggers a spike in tax value to the current market rate. Knowing what triggers property tax reassessment is crucial; this includes sales, certain gifts, and, especially after Prop 19, most transfers from parents to children. Transfers between spouses and into revocable trusts are generally exempt, but property owners must file a preliminary change of ownership report (PCOR) with the county recorder to legally claim any exclusion and avoid fines. Preemptive legal review is essential to avoid accidental reassessment traps.

California Property Tax Shock: What Triggers Property Tax Reassessment and the True Cost of an Unplanned Property Tax Transfer

1. The Core Question: What Triggers Property Tax Reassessment?

California’s Proposition 13 limits annual property tax increases to two percent. This protection is erased by a change in ownership reassessment.

Defining Change in Ownership (CIO)

The county assessor uses a broad definition for CIO: it is any property tax transfer that shifts the present interest and beneficial use of the property. When this happens, the assessed value immediately jumps to current market rates.

The four most common events that answer the question, what triggers property tax reassessment, are:

• Sale or Gift: Any conventional transfer or sale of more than 50 percent of the property to an unrelated party.

• Death: The transfer of property upon the owner’s death is a major trigger unless a specific legal exclusion applies.

• Long-Term Leases: A lease with a term of 35 years or more (including renewal options) is viewed as a transfer of the entire beneficial use.

• Transfer to a Business Entity: Moving property into or out of an LLC, corporation, or partnership, depending on the percentage of interest transferred, can trigger reassessment.

2. The Solution: Filing the Preliminary Change of Ownership Report

Every single time a property tax transfer is recorded, a key document must be filed with the County Assessor: the preliminary change of ownership report (PCOR).

Why the PCOR is Mandatory

• Claiming Exclusion: The preliminary change of ownership report allows the new owner (transferee) to claim an exclusion from change in ownership reassessment right away.

• Avoiding Penalties: Failure to file the preliminary change of ownership report upon recording a deed may result in statutory penalties of several hundred dollars added to the tax bill.

• Preventing Disputes: Filing the PCOR preemptively provides the assessor with the necessary facts, preventing them from initiating a full reassessment based on incomplete information.

3. Exemptions: The Safe Zones for Property Tax Transfer

Not all property tax transfer actions result in a change in ownership reassessment. California law provides several vital exclusions:

• Transfers Between Spouses/Partners: Transfers between spouses or registered domestic partners are always excluded, both during life and upon death.

• Revocable Trusts: Transferring a home into a revocable trust where the original owner remains the trustor/beneficiary typically does not trigger a change in ownership reassessment because the beneficial interest is preserved.

• Original Co-Owner Transfers: The transfer of a joint tenant’s interest upon death to a surviving original joint tenant is usually excluded.

The Major Prop 19 Trap (Inheritance)

The rules for inherited property changed drastically with Proposition 19 (2021). The new law significantly limits the Parent-Child Exclusion:

• Primary Residence Only: The exemption only applies if the child uses the inherited home as their primary residence.

• Full Reassessment Risk: If the child does not move in, the exemption is lost entirely, and the property is subject to a full change in ownership reassessment.

• Complexity: The complexity of these rules means preemptive trust planning is essential to avoid a costly change in ownership reassessment upon the owner’s death.

The new Prop 19 rules and entity transfer laws make expert planning essential. If you own commercial property or are considering a transfer to a trust or LLC, our attorneys advise on strategies that may help preserve your tax base. Contact Bay Legal, PC today to work toward protecting your Prop 13 value. You can schedule an appointment via our booking calendar, call us at (650) 668 800, or email intake@baylegal.com. (Attorney Advertising. Principal Office: 667 Lytton Ave Suite 3, Palo Alto, CA 94301, United States).

Frequently Asked Questions (FAQs)

1. What is the basic definition of a change in ownership reassessment?

A change in ownership reassessment is the process where a property’s tax value jumps from the low Prop 13 base to the current market value due to a legal property tax transfer.

2. What triggers property tax reassessment most often?

The most common event what triggers property tax reassessment is a sale, a gift, or an improperly structured transfer of inherited property after the owner’s death.

3. Does adding my child to the deed trigger a reassessment?

Yes. Adding a non-spouse child to the deed as a joint tenant constitutes a proportional property tax transfer to a new owner, which generally triggers a change in ownership reassessment on the transferred share.

4. What is the Preliminary Change of Ownership Report (PCOR)?

The preliminary change of ownership report (PCOR) is a required form filed with the County Recorder or Assessor that allows the new owner to claim a tax exemption or inform the assessor of the nature of the transfer.

5. Does placing my home into my revocable living trust cause a change in ownership reassessment?

Generally, no. Transferring a primary residence to a revocable trust typically does not qualify as a change in ownership reassessment because the owner maintains the beneficial use and control.

6. What happens if I fail to file the preliminary change of ownership report (PCOR)?

Failure to file the preliminary change of ownership report may result in statutory penalties added to your tax bill and can prompt the assessor to initiate a change in ownership reassessment prematurely.

7. Are transfers to an LLC exempt from reassessment?

Transfers to an LLC are usually considered a change in ownership reassessment unless they meet complex statutory exceptions related to proportional interest transfers. Specialized legal advice is necessary.

8. Does the Parent-Child exclusion still prevent reassessment after Prop 19?

Under Prop 19, the Parent-Child exclusion is highly restricted. The exemption for the primary residence only applies if the child uses the home as their primary residence, or the property tax transfer will result in a full reassessment.

Attorney Advertising

This website and its contents are for informational purposes only and do not constitute legal advice. Prior results do not guarantee a similar outcome. Every estate planning matter is unique and depends on specific circumstances and applicable law. Viewing this site or contacting Bay Legal, PC does not create an attorney–client relationship. If you need legal advice, please schedule a consultation with a licensed attorney.