Taxes RE-ASSESSED or NOT after buying BELOW assessed value?

[23109VC]

hypothetical question:

Person A buys house for $450k in 2005. House is assessed for that amount and taxes calculated on that amount.

Two years later, house sells for $350k b/c investor/flipper is losing his rear end and prices are falling.

Does NEW buyer automatically get his property taxes calculated off this NEW value…or does teh county hose you and leave the value up at the old/high value and force you to try and appeal the amount?

given how home values are dropping…people buying resale properties that were bought for $100-200k higher than the ultimate resale price, could get stuck with the “bubble” tax bill???

[SD Realtor]

New value.

There is a ripe discussion though about what the buyer will see on his closing statement for the property tax up to the next period but I don’t feel like typing that all out right now.

SD Realtor

[recordsclerk]

You can also have your home re-assessed if you believe your current value is less then what you paid. You can to go the assessor’s website at http://www.sdarcc.com (sorry don’t know how to attach link or info) to get information. Anyone want to attach the News Release: Property Tax Relief.
http://www.sdarcc.com/arcc/docs/Prop8-2007-01.pdf

[El Jefe]

Just keep in mind that the reassessment does not change your original cost basis. It is a temporary valuation for tax purposes only. As soon as values really start to increase again and recover, your taxes will shoot right back to where they would have been assuming they had gone up 2%/yr from when you originally purchased, not 2% from last year, far exceeding the prop-13 cap. A lot of people don’t realize this, and when the tax man “recaptures” those lost taxes after many years of price stagnation, they are hit with a property tax hike of the likes of a neg-am teaser readjusting.

[greekfire]

How are the taxes computed if a house that was covered under Prop 13 is inherited? Does it get re-assessed at the current market value or do the inheritors continue to pay the old Prop 13 tax? Is there anyway to ensure that inheritors continue to pay the Prop 13 tax, e.g., putting the home into a trust?

[23109VC]

this somewhat misses my original question..

House A is sold as brand new construction for $450k.

Prices fall – like we all knew they would. Now it is only “worth” $350k in the current market… and it sells for that new LOWER price… $350k.

when new owner buys the property, at 350k…. will his new property tax bill be based on HIS new cost of 350k… or will the county try to claim it’s still worth MORE and assess/bill off the older/higher value?

so basically – if you buy a house for LESS than the prior owner bougth it for – do you pay taxes on the new lower price??

[sdrealtor]

You pay taxes based upon your purchase price not the prior owners price with one small glitch as inferred by SD R. When you close, you will pay taxes based upon the current assessed value initially. In a couple months, the new price will go through the system and you will be reassessed at the lower value. Any overpayments would be resolved but initially you would take a cash flow hit.

[sdrealtor]

Prop 13 allows for parent -child transfers of tax basis. It’s one of the reasons I will never sell my house. Eventually one of my kids will be living in a gazillion dollar house (or what ever its worth in about 25 years) with a pre-current bubble tax bill.

[Chance the Gardener]

SD Realtor…

Feel like typing yet. I just closed on a place for $625k that was previously assessed at $853k. So at closing (where I paid taxes for the period from 4/19 to 7/1, or 73 days), I paid a little over $500 more than what the taxes should have been [(853k-625k)*1.12%/360*73]. Can I get this back? From who? How?

Thanks

[SD Realtor]

Hi Chance –

First off congratulations on the purchase! Yes at closing you did pay from 4/19=7/1 based on the originally assessed value of 853k. Yes you will get this back. Let’s work in reverse a little bit, that makes the explanation easier. As the market ran up, people bought homes that were more expensive then the previous purchase. So a home that was originally purchased at 600k then resold at 800k. At closing the buyer would pay the difference (like you did chance) but at the 600k assessment. Then a few weeks later the buyer would receive a friendly supplemental tax bill from the assessor that would cover the difference for that time period (in your case from 4/19 to 7/1) of the 600k to 800k assessed value. From then on all future tax is based on the 800k assessment.

Now to your case. It will work in the inverse manner. Several weeks from now you will receive a check (at least you should) from the county assessor. Your home will be assessed at the new value. You should not have to do anything. If you are very concerned you can call the county assessors office. I would wait a few weeks but if you want you can call them now.

SD Realtor

[SD Realtor]

Also (sdr correct me if I am wrong) but the further benefit of passing the home of the kids is that when the event that caused the house to transfer occurs, the basis is recalculated to the value of the home on that date of that event. So the children live in a house with the stepped up basis but pay the original property tax. nice…

SD Realtor

[sdrealtor]

You are absolutely correct. The tax basis steps up in value for income tax purposes at inheritance while the assessed value remains. Heck, they could pass it down a couple generations this way if it is still standing. Even if the house is worth what it is today it would be a major windfall.

[Author]

Posts