Exclusions and Errors: Can You Challenge Your Property Tax Bill?

If you own real estate in California then you know that it’s tax time. The county sent you your most recent property tax bill about two months ago, in early October. The payment came due on November 1, and you have until December 10 to mail it and avoid the ten percent fine for delinquency. So far, so good. But what if your property tax bill seems too high?

Mistakes on property tax bills happen for a couple of reasons. There’s one scenario where, in the case of commercial real estate, the owner is being asked to pay property taxes based on revenue that is associated with the property but doesn’t actually go to him. (E.g. a hotel owner whose property tax bill reflects income from a restaurant or a spa that is located on the hotel premises but owned by a third party.)

And then there’s another scenario where an erroneous reassessment of the property value results in a higher tax bill. How come? Well, in California, when a piece of real estate changes hands the county generally reassesses the property value and raises taxes accordingly. Note how I say “generally”? This is because the law provides for exclusions: Transfers of a primary residence from a parent to a child, and of any piece of real estate from an individual to a living trust should not trigger a reassessment. Sometimes the reevaluation can also be avoided when the form of ownership changes, e.g. from an individual to an LLC.

Obviously, these exclusions can work as nifty tax saving tools which is why estate planners love them. But the benefits can also get lost in the process, e.g. when the transfer into the living trust is not structured correctly or when the property owner doesn’t supply the county assessor’s office with all the information needed to support his or her claim for an exclusion.

If you believe that your case fits one of the scenarios above, i.e. the value of your property was reassessed even though an exclusion applies or the county is including third party income in your property tax bill, you have a legal basis for an appeal before the county Assessment Appeals Board. If that fails, you can litigate. The good news is that such challenges are often successful. And the one factor to remember is that a faulty reassessment affects not just your current tax bill. It carries forward, and over the course of the years it can add up to substantial overpayments.

By Kevin J. Moore

Kevin Moore, Founder of Kevin J. Moore & Associates, is focused in the areas of estate planning, trusts and probate services with additional expertise in both domestic and international business transactions and tax planning and tax controversy representation for individuals and companies.