How Can Changes in Ownership Affect California Property Taxes for Commercial Real Estate?

 Posted on July 28, 2023 in Taxation Law

In California, property taxes can be a significant concern for commercial real estate owners. Depending on the assessed value of a property, these taxes can be very high, and the requirement to pay these taxes may cause financial difficulties for property owners. Due to current trends in California real estate, the value of many properties has plummeted, and some property owners may struggle to meet their obligations. However, this may present an opportunity to reassess the value of a property through changes in ownership. By understanding when the transfer of ownership of a property may affect property taxes, commercial real estate owners may be able to take steps to reduce their tax burden.

Proposition 13 and Property Tax Assessments

Property tax assessments in California are governed by Proposition 13, a law that was passed in 1978. This law set the maximum property tax rate at 1%, and it also limited the amount by which the assessed value of a property can increase from year to year. A property will have a “base year value” that is assessed based on when the property was originally purchased, when construction was last completed, or when the property changed ownership. The assessed value of a property can only increase by 2% per year, regardless of the property’s actual fair market value. 

California law also allows for temporary adjustments to a property’s assessed value to be made if the value of the property has decreased below its base year value. This may allow for reduced property taxes based on the property’s current fair market value. However, if a property increases in value at a later date to the point where it meets or exceeds the base year value, property taxes will be assessed based on the original base year value.

There are certain circumstances that can trigger a reassessment of the value of a property, including when changes in ownership occur. In some cases, there may be questions about what exactly constitutes a change in ownership. For commercial real estate that has multiple owners or is owned by a business entity, a change in ownership may occur if a property is transferred from one entity to another or if a person or company assumes more than 50% control of a business that owns the property. However, transfers of property between two entities that are owned by the same parent company or changes to the title of a property that do not affect ownership interests of the property will not be considered changes in ownership.

There have been numerous cases in which California courts have found that corporate mergers or restructuring have constituted changes in ownership of commercial real estate that required a reassessment of the property’s value. While these rulings may have had negative repercussions on commercial real estate owners in the past, they may provide advantages in the current real estate market. For properties that have experienced a decrease in value, taking actions that are considered a change in ownership will trigger a reassessment. If a property is assessed with a lower base year value, this will limit the amount by which property taxes can be increased if the property regains its value in the future.

Contact Our San Jose, CA Property Tax Assessment Lawyer

Issues related to property taxes in California can be complicated, but there are several methods that commercial real estate owners may be able to use to minimize their tax burden. At John D. Teter Law Offices, our San Jose property tax attorney can ensure that real estate is assessed correctly, and we can provide guidance on the steps that can be taken to limit the amount of property taxes that a person or company may be required to pay. To learn more about how we can address issues related to property taxes, contact our firm at 408-866-1810.

Sources:

https://www.sccassessor.org/faq/understanding-proposition-13

https://www.boe.ca.gov/proptaxes/faqs/changeinownership.htm