Five Property Tax Tips to Save Money
By Mark Ong, Managing Director of Independent Tax Representatives, LLC
We asked Mark to provide some tips to our readers on how they might save or reduce their property taxes. In 2004, Mark
established Independent Tax Representatives (ITR), a prominent, boutique property and transfer tax consulting firm in San
Francisco. Prior to founding ITR, Mark led the property tax groups at two national accounting firms.
What is new in property taxation?
Although the law has been in existence for many years, it is only recently that we’ve seen major developments in the area of
intangible properties. Two recent cases, SHC Half Moon Bay and Elk Hill Powers provided us with much needed clarification
and guidance in this area.
Intangible property is not assessable for property tax purposes and is not taxable for transfer tax purposes in California. A seller
of a $100 million franchised hotel can “carve out” as much as 25% of the sales price to be excluded from transfer tax basis for
the seller and be excluded from property tax basis for the buyer. Both the buyer and seller can save hundreds of thousands of
dollars of transfer and property taxes. Preferably, the intangible value study is done before the sale.
Can property tax laws and rules be misinterpreted?
It happens more than one might think. Property tax laws, perhaps more than other type of tax laws, are subject to interpretation.
Two readers reading the same passage may reach different conclusions. Even established laws like Prop 13 may be forgotten
if a property tax appraiser is not careful. He may attribute value increase to a portion of the property, such as land, that is not
subject to re-appraisal. Property owners should engage experienced consultants to carefully go through assessment records
to look for errors, omissions or misinterpretations of the law that may cause over or even double assessments.
Many of our clients constructed or renovated properties in the last few
years. Are there any opportunities?
Yes. The first thing to remember is cost does not always equal value and value is the basis of assessment. There are at least
two concepts here. First, cost is the sum of an owner’s expenditures, a consumption concept. But value is what a buyer is
willing to pay, an exchange concept. Second, certain code compliant related costs are not assessable by law. It is critical to
keep detailed construction or renovation cost records, so a segregation analysis for assessment purposes can be done later.
It is equally critical to ask: can the assessment be lower than the cost?
To exclude certain construction costs, an owner has to timely file claims for exclusion from new construction.
How can our clients realize maximum sales proceeds by minimizing the
buyer’s property taxes?
Typically when property sells, a buyer pays higher property taxes than the seller. However, the buyer’s taxes can be kept at the
seller’s level if the circumstances are right.
An asset owned by an institutional client will typically hold the title in a legal entity. If the ownership of that entity can be sold
to multiple parties that do not have the same composition of owners so no party gets more than a controlling interest (>50%),
then there is no change in ownership due to the sale.
12 BPM Real Estate Insights
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