Consider Appealing Your Property Tax Assessment If You Own Property That Has Declined Substantially in Value.
If your property has substantially declined in value during the past year, be alert to the potential for a property tax assessment appeal. |
Real property taxes in California are based upon a property's fair market value. Recently acquired or improved properties may be assessed at values well above current market value, resulting in higher property taxes than may be warranted. Property for which the current fair market value is below its base year value can and should be reassessed.
A property owner may appeal a property's assessed value and request a downward adjustment in the property's assessment by timely filing an application for a changed assessment.
In most counties, such application must be filed between July 2 and September 15 of the year in dispute. Different deadlines may apply if the appeal follows either an escape assessment or a supplemental assessment, which normally follows a recent change in ownership. Any reduction in assessed value following a hearing on an application for changed assessment, applies only to the year in which the application is filed and subsequent years. No retroactive reduction in assessment is permitted.
Property owners and lenders should be mindful in dealing with loan modifications, foreclosures, and project restructurings to the potential property tax consequences of the particular transaction.
In the foreclosure context, a change of ownership occurs when a foreclosure sale takes place. The assessed value of the property will thereafter be based upon the value paid at the foreclosure sale, whether that is equal to or greater than the property's real fair market value. Likewise as to any "deed–in-lieu" transactions. Similarly, a change in ownership resulting in reassessment may occur when ownership interests in a legal entity holding title are transferred. In California, the State Board of Equalization reports information to local county assessors whenever there appears to be a transfer of entity interests that may constitute a change in ownership.
What constitutes a change in ownership or new construction for property tax assessment purposes is the subject of several Revenue and Taxation Code Sections as well as Property Tax Rules found in Title 18 of the California Code of Regulations. Section 60 of the Revenue and Taxation Code defines a change in ownership as " a transfer of a present interest in real property, including the beneficial use thereof, the value of which is substantially equal to the value of the fee interest." Section 61 specifies various types of transfers which result in a change in ownership. Sections 61 and 64 of the Revenue and Taxation Code set forth circumstances under which transfers of interests in legal entities result in changes in ownership. What constitutes new construction is covered in Section 70 of the Revenue and Taxation Code.
Note:
A property that has been damaged or destroyed by misfortune or calamity may be reassessed immediately if the property is located in a county that has adopted an authorizing ordinance under Section 170 of the Revenue and Taxation Code.
Property tax assessment appeals require proof of market value. Generally the burden of proving that the property has not been properly assessed is upon the owner/applicant.
In change of ownership situations, a rebuttable presumption is applied that the purchase price is the fair market value of the property.
The valuation methods used to determine fair market value in property tax assessment appeals are the same as the valuation methods employed under the Evidence Code to determine the fair market value of property whenever that is an issue.
Value may be proven by use of the comparable sales approach, the cost or replacement cost approach, or the income approach. In cases involving large commercial projects where the original purchase price was determined on the basis of income generated by the project and that net income has declined due to market conditions (attributable to vacancies, lower rents, changes in market capitalization rates, etc.) an assessment appeal may or is likely to require competent expert opinion evidence. That opinion evidence would or should include comparable sales and rental data and analysis. Comparable sales and rentals must have occurred no more than 90 days after the assessment or valuation date. This rule is mandatory and any comparable sales or rentals that occur more than 90 days after the assessment or valuation date must be ignored and excluded. For appeals based upon a decline in value, the valuation date will almost always be the January 1 lien date. Hence, most appeals based upon a decline in value will be proceed based upon available sales, rental or similar data in the preceding calendar year.
Please give us a call if we can be of assistance in deciding whether appealing your property tax assessment is appropriate. |
