Common Events That Trigger Reassessments in California

?In California, property taxes are determined by the assessed value of the property, which can change when there is an improvement to the land or a “change of ownership.” These reassessments can lead to a change in the Proposition 13 assessed value and subsequently, a change in property taxes. Here are some common scenarios that can trigger a reassessment:

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Land Development and New Construction for Commercial Property

Developing commercial land and adding significant improvements, can trigger a reassessment. This includes constructing new buildings or adding square footage. For example, adding office space or building a parking structure can trigger a reassessment. The assessor can add the fair market value of the new construction to the property’s base year value upon completion.

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Substantial Renovations or Changes in Use

Substantial renovations that significantly change the property’s usable life can lead to reassessment. This may include major upgrades to plumbing, electrical systems, or foundations. Renovations that convert the property to a “like new” condition or significantly alter its use are considered new construction and could be subject to reassessment. Converting the use of the property can also trigger a reassessment, such as converting a warehouse into a multifamily property.

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Completion of Tenant Improvements

Tenant improvements refer to modifications made by a tenant to leased property. Many of these improvements can include structural changes, additions, or enhancements to the property. First generation tenant improvements to a vanilla shell can be assessable. Upon completion of these improvements, the property may be reassessed to reflect the increased value resulting from the enhancements. While most 2nd generation tenant improvements would not trigger a reassessment, major structural changes to space could still risk reassessment.

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Long-Term Leases

The execution or termination of a long-term lease, typically defined as 35 years or more including options, can be considered a change of ownership. When a property is leased for such an extended period, it is treated as if the ownership has transferred to the lessee, triggering a reassessment of the property’s value.

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Change in Ownership and Partial Interest Changes

A change in ownership occurs when 50% or more of the present interest and beneficial use of the property is transferred, equating to the value of the fee interest. This can happen through sales, gifts, inheritance, or legal transfers. When such a transfer occurs, the property is reassessed to its current market value.

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A partial interest transfer in a commercial real estate sale occurs when only a portion of the ownership interest is sold or transferred. This means the property is owned by more than one entity, each holding a fractional share. For instance, if two partners each own 50% and one sells their share, the new owner will holds 50% interest. Changes in partial interest, such as those during a refinance, can also trigger a reassessment. Additionally, property under Tenancy in Common (TIC) ownership is at risk for triggering a reassessment for interest changes of 10% or more. This commonly occurs during a refinance where one co-owner’s interest changes and can trigger a change of ownership for that interest portion.

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Inheritance, Gifts and Transfers to Trusts

While certain transfers between parents and children or between spouses are often excluded from reassessment, other transfers, such as those between siblings or other relatives, can trigger a reassessment. It’s important to understand the specific exclusions and rules that apply.

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Transferring property into or out of a trust can trigger a reassessment unless specific exclusions apply. For example, transferring property to a revocable trust where the transferor is the beneficiary may not trigger reassessment, but other types of trust transfers might.

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While these are some common scenarios that can lead to a reassessment, property tax laws are complex and nuanced. It is wise to consult with an experienced property tax professional to understand the specific implications for your situation.

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By being aware of these potential triggers, property owners can better navigate the complexities of property tax reassessment in California. For specific questions or detailed advice, seeking professional guidance is the best course of action.

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At Property Tax Resources, we believe in building deeply embedded relationships with our clients. Our goal is to align ourselves completely with our clients’ objectives and deliver the results they seek. We are a team of seasoned professionals with the expertise to produce exceptional results across the country. Visit our website for more information:

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www.ptaxresources.com Property Tax Resources, LLC [email protected]