Joint Tenancy Law & Property Tax Reassessment

          In California, the yearly increase in the assessed value of real property cannot exceed two-percent (Proposition 13). Thus, when after many years under Proposition 13, a reassessment to current fair market values occurs it can cause a dramatic increase in real property taxes. 

Reassessments are a result of a “Change in Ownership” (sections 60, et. seq. of the Revenue and Taxation Code).  Whether a change in title triggers a partial or complete Change in Ownership depends on how real property is being re-titled and other factors. Let us consider the Change in Ownership rules for Tenants in Common and for Joint Tenants (California Code of Regulations sections 462.020 and 462.040).

The creation, transfer of termination of either a tenancy in common or a joint tenancy is a change in ownership of the interest that is transferred unless an exception applies. 

Important exceptions exist for interspousal transfers, transfers of a primary residence from parent to child (and sometime from grandparent to grandchild), and a transfer at death from one cotenant of their primary residence. 

Interspousal transfers excepted from reassessment include, “the creation, transfer, or termination, solely between spouses, of any co-owner’s interest,” and, “transfers which take effect upon the death of a spouse.”  For examples, take adding your spouse to title; transferring a portion of your undivided interest as a tenant in common to your spouse, either as an additional tenant in common or as a joint tenant with you as to your original undivided interest.

As of February 15, 2021, under Proposition 19, the parent to child exclusion is limited to transfers from parent(s) to child(ren), or grandparents to grandchildren (where the parent is deceased), of the transferor’s primary residence provided that the child(ren), or grandchildren (if applicable), live there as their primary residence (and do so within one year of the transfer).   For transfers before February 15, the prior Proposition 58 rules still apply.

A transfer of ownership at death between either tenants in common or joint tenants of their primary residence whereby the surviving tenant owns 100 percent of the residence is excepted from reassessment upon filing an Affidavit of  Cotenant Residency.

Specific change in ownership rules apply once joint owners create a joint tenancy.  That is, once joint owners transfer their undivided interests to themselves as joint tenants they become so-called, “original transferors”.  Moreover, the same is true even if the transfer adds additional owners, who are called “other than original transferors”.  So long as all original owners either become or remain as joint tenants, after the transfer, there is no change in ownership. 

If an original transferor joint tenant dies or transfers his interest whether there is any change in ownership depends on if after the death or transfer there remains one, or more, of the original transferor joint tenants on title.  If an “other than original transferor” joint tenant dies or transfers his interest then then whether there is a change in ownership depends on if an “original transferor” joint tenant remains.  So long as there is an original transferor there is no reassessment.  Once the interest of the last original transferor ceases (due either to death or transfer) then there is a 100% change in ownership. 

Also excluded from reassessment is termination of a joint tenancy if the co-owners retain their same proportionate interests in a new form of co-ownership.  For example, the joint tenants transfer their interests to themselves as equal tenants in common.

In order to administer the real property tax rules when title to real property changes, Change in Ownership documents are required to be filed with the local assessor.  Additionally, to claim an exclusion from reassessment, documents such as the “Claim for Reassessment Exclusion for a Transfer between Parent And Child” or the “Affidavit of Cotenant Residency” must be filed on a timely basis with the local county assessor’s office to request an exclusion.

The foregoing discussion is only a simplified and partial discussion of more complex tax rules.  Consult an attorney if needing real property tax advice.

Dennis A. Fordham, attorney, is a State Bar-Certified Specialist in estate planning, probate and trust law. His office is at 870 S. Main St., Lakeport, Calif. He can be reached at Dennis@DennisFordhamLaw.com and 707-263-3235.