Newsletters Taxes

What is that Supplemental Tax Bill you just got?
The State gets theirs again
Capital Gains Exclusion

JUST WHAT IS THAT SUPPEMENTAL TAX BILL YOU JUST GOT?
According to Gary Orso, Riverside County Tax Assessor, Proposition 13 requires that county assessors reappraise property whenever the property changes ownership, or whenever new construction occurs. Until legislation in 1983, the new value did not appear on the regular property tax bill until 4 to 16 months later. Supplemental assessments now immediately enroll the new value to the Tax Roll for the year in which appraisal was made.

Effective on September 10, 1984, if subsequent changes in ownership occur before a supplemental tax bill has been issued on a prior supplemental assessment on the same property, taxes will be prorated between the individual owners involved, based on the actual period of ownership. This may apply if there is a value appearing in the box labeled "Less: Amount Prior to Supplemental (s) which is in Section 1 on the enclosed Notice of Supplemental Assessment.

This explains why if you bought and sold a home in the last two years, you can now be receiving a supplemental bill for the time you owned the property, even though you have sold it already. Since the assessment has been immediate, but the billing can sometime take months, you are still responsible for the assessment while you owned the property, even though you may have never gotten the bill until after you sold it.

Additionally, if you receive a supplemental assessment bill on a property you have just purchased, pay it on time. If you have a tax impound with your mortgage, fax the bill to them and see if they will adjust your impound account to compensate. Remember, allowing the bill to lapse for 5 years could make your property vulnerable to a tax sale by the county.

In these frantic times in real estate, things are slow and sometimes missed altogether at the county. So, if you are unsure about any tax bills you receive, call the Assessors office at 1-800-746-1544, or locally at 951-600-6200.

THE STATE GETS THEIRS ... AGAIN
By now, you have certainly heard of the California Withholding Tax (AB 1338). It was passed back in 2003 and allowed the state to withhold 3.33% of the sales price, (not the gain), anytime any piece of real estate was sold. The law contained 5 exemptions for property owners. They are:

#1-if the sale of the property is due to voluntary conversion (a government taking the property or eminent domain) and the seller will replace the property under a 1031 tax deferred exchange.
#2-if the property was sold as part of a 1031 exchange by the seller's choice
#3-the property was sold at a loss
#4-the property sold is the seller's "principal residence" (lived in the property two of the last five years)
#5-the sale of the property was for less than $100,000.

A new exemption is that if the sold property was last used as the primary residence of the seller, even if the seller has not lived in the property for two years of the last five.

Now, they have fixed another loophole. Any escrow that closes on or after January 1, 2005, any transfer of property owned by non-individual owners
(such as trusts, corporations, limited liability corporations, or estates) are now also subject to the same automatic withholding as individuals. (Just think how much interest the state can earn on your money for the year until you file your taxes!!) The only exemptions for non-individuals are if the property is sold in a 1031 exchange, sold at a loss, or the sale by an estate where the property was the decedent's principal residence.

Everyday, I talk to clients who are selling and leaving the state. Thank goodness we have such great weather, or these kinds of state imposed taxes would make more people run for the hills.

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CAPITAL GAINS EXCLUSIONS
By now you have surely learned about capital gains exclusions on your residence. The fact that you can you can exclude up to $500,000 as a married couple or $250,000 as a single owner, is old news by now. But… what if you haven't lived in your residence for the two years out of five that is required?

You can qualify for a limited exclusion on a pro-rata basis if you moved for reasons of health, change of employment and unforeseen circumstances.
Specifically:

1. The taxpayer got a new job at least 50 miles away from the residence than the previous job;
2. There was a loss of or change in employment resulting in the taxpayer's inability to pay the housing costs and reasonable basic living expenses of the household;
3. the move is to facilitate the diagnosis, care, medication or treatment of a disease, injury or illness;
4. the property has be subject to involuntary conversion (eminent domain);
5. the property is damaged by a natural disaster;
6. the taxpayer has died;
7. the taxpayer has been involved in a divorce or legal separation; and
8. any individual living in the house has multiple births from a single pregnancy.

This exclusion can only be used once every two years, as well as the property must qualify as a true principal residence. For further information, contact either the Internal Revenue Service or your tax preparer.

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