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Proposition 13 passed in 1982 with the help of Mr. Jarvis, is the law in California that provides that property taxes will generally not exceed 1% of assessed value. Assessed value is a misunderstood concept, it is not the same the same thing as fair market value. People are confused because when they see their property tax bill it might say that the assessed value is $800,00.00 dollars and yet the property bill isn't S8,000.00 dollars, it might be $10,000.00 dollars. Why is that? The property tax might turn out to be 1.25%, 1.4% of the assessed value because the counties are also allowed to charge for local bonds and other assessments. Don't be concerned if it's 1.25 or 1.4%, varying from county to county. The most important part about property tax rules is to try to avoid, when you are doing estate planning, having what's called a "change in ownership", CIO. If there is a CIO then the problem is that the property can be reassessed by the county, which usually means going up. The property can be reassessed to the current fair market value. If in my example the property has an assessed value of a million, but it has a fair market value of 2 million, then the property taxes may be going from $8,000 or $10,000 dollars, up to $20,000 dollars or if it's 1.4% it could be $25,000 dollars per year. There are two principal exclusions from property tax change in ownership, the most important are these two; husband - wife or partners (registered domestic partners) and parent -- child. There is an easy way to commit malpractice when working with those two, because for the spousal exclusion, a spouse can transfer an interest in an entity to the spouse. Say the property is in a limited liability company, or a partnership, or corporation; the spouse can transfer an interest in the corporation that owns the real estate to the other spouse, and that's not going to be a change in ownership. It doesn't apply for the parent -- child exclusion, if the parent transfers an interest in an LLC, corporation or partnership to the child, the parent -- child exclusion does not apply. Happily, when we see these mistakes, and it's relatively common, the state and the county is relatively easy in allowing us to file our rescission deeds to correct the mistake. I hope that's helpful for you in understanding the generalities of Prop 13, please give us a call if you have questions.
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