BILL ANALYSIS �
AB 1700
Page 1
ASSEMBLY THIRD READING
AB 1700 (Butler)
As Amended April 17, 2012
Majority vote. Urgency. Tax levy
LOCAL GOVERNMENT 6-3 REVENUE & TAXATION 7-1
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|Ayes:|Alejo, Bradford, Campos, |Ayes:|Perea, Beall, Alejo, |
| |Davis, Gordon, Hueso | |Swanson, Fletcher, |
| | | |Fuentes, Gordon |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Smyth, Knight, Norby |Nays:|Harkey |
| | | | |
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APPROPRIATIONS 12-4
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|Ayes:|Fuentes, Blumenfield, | | |
| |Bradford, Charles | | |
| |Calderon, Campos, Davis, | | |
| |Gatto, Hall, Hill, Lara, | | |
| |Mitchell, Solorio | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Donnelly, Nielsen, Norby, | | |
| |Wagner | | |
| | | | |
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SUMMARY : Excludes from property tax reassessment a transfer of
co-tenancy interest in a principal residence if the principal
residence was owned by two individuals and was transferred to
one of those individuals upon the death of the other, with the
survivor obtaining sole ownership of that property.
Specifically, this bill :
1)Revises existing property tax law to provide that a transfer
of a co-tenancy interest in real property from one co-tenant
to the other that takes effect upon the death of the
transferor co-tenant does not constitute a "change in
ownership."
2)Specifies that a transfer of a co-tenancy interest in real
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property does not constitute a "change in ownership" only if
all of the following requirements are satisfied:
a) The transfer is solely between and by two individuals
who, together, own 100% of the real property in a joint
tenancy or as tenants in common;
b) The deceased co-tenant's interest in the real property
is transferred to the surviving co-tenant, thus,
terminating the co-tenancy;
c) For one year immediately preceding the transfer, the
real property was co-owned by the co-tenants, and both
co-tenants have been the owners of record of that real
property;
d) The real property constituted the principal residence of
both co-tenants immediately preceding the transferor
co-tenant's death;
e) The co-tenants continuously resided at that residence
for the one-year period immediately preceding the transfer;
and,
f) The transferee has signed, under penalty of perjury, an
affidavit affirming that he/she continuously resided with
the transferor at the residence for the one-year period
immediately preceding the transfer.
3)Provides that a transfer of a co-tenancy interest in real
property takes effect upon the death of the transferor
co-tenant pursuant to the co-tenant's will or trust, through
intestate succession, or by operation of law.
4)Applies to a transfer of real property interests only if the
transfer does not qualify for any other exclusion from a
property tax reassessment under Revenue and Taxation Code
(R&TC), Chapter 2 of Part .5 of Division 1 (Sections
62-69.5).
5)Defines "co-tenancy interest" as an interest in real property
held only as tenants in common or joint tenants.
6)Defines "principal residence" as a dwelling eligible for
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either the homeowners' exemption or the disabled veterans'
exemption.
7)Provides that, notwithstanding other provisions of law, the
state is not required to reimburse, and will not reimburse,
local agencies for any property tax revenues lost by them
pursuant to this bill.
8)Applies to transfers that occur on or after January 1, 2013.
9)Takes effect immediately as a tax levy.
FISCAL EFFECT : The Board of Equalization (BOE) staff estimates
that this bill will result in a revenue loss of $108,000
annually.
COMMENTS :
The Author's Statement . The author states that, "AB 1700
protects surviving co-owners from the financial hardship of
property reassessment when a loved one passes away. People who
live and own a home together and are unmarried, whether by
choice or because of the law, should be treated equally to
married couples."
Arguments in Support . The proponents state that, as a result of
Proposition 13 and today's inflated real estate market, property
tax reassessments often have the practical impact of forcing
surviving owners to leave their homes. Proponents argue that
this bill is consistent with the intent of Proposition 13 in
that it prevents financial hardship for the surviving co-owner,
regardless of whether the co-owners are siblings, unregistered
domestic partners or senior citizens sharing the cost of
housing. Finally, proponents believe that this bill would
benefit many Californians, including same-sex couples, seniors
and families.
"Joint Tenancy" and "Tenancy in Common." Joint Tenancy is a way
for two or more people to share ownership of real estate or
other property. When two or more people own property as joint
tenants and one owner dies, the other owner automatically
becomes the owner of the deceased owner's share. For example,
if a parent and child own a house as joint tenants and the
parent dies, the child automatically becomes the full owner of
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the house. Because of this right of survivorship, no will is
required to transfer the property because it goes directly to
the surviving joint tenants, without the delay and costs of
probate.
Under current law, a transfer of property to the surviving joint
tenant that has "original transferor" status is exempt from
reassessment. (R&TC Section 65). In the case where the
surviving joint tenant does not have that status, the percentage
of the property subject to reassessment to current market value
is 50%. However, if the surviving joint tenant had been added
to the title of the principal residence after the decedent had
first acquired that property, and the surviving joint tenant did
not thereafter obtain "original transferor" status, the whole
property will be subject to reassessment. The 100% reassessment
is authorized in this case because the property was not
reassessed initially when the decedent added the survivor to the
property's title as a joint tenant.
As long as a person with "original transferor" status remains on
title, the property will not be reassessed. Co-owners of real
property may become "original transferors" in the following ways
(Property Tax Rule 462.040):
1)A and B take title to property as tenants in common, then
transfer to A and B as joint tenants.
2)A and B take title to property as joint tenants, then transfer
their interests in the property to their revocable trusts for
the benefit of each other, as joint tenants.
3)A transfers title to A and B as joints tenants, and A, but not
B, becomes an "original transferor." If, however, B transfers
his interest in the property to his revocable trust for the
benefit of A, then B becomes an "original transferor."
Tenancy in common is a way for two or more people to own
property together where each can leave his/her interest upon
death to beneficiaries of his/her choosing instead of leaving it
to the other owners, as is required with joint tenancy.
Under current law, a transfer of interest between the decedent
and the survivor that had equal ownership interests in the
property would be subject to a 50% reassessment or, in the case
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where the tenants did not own equal interests, the reassessment
would be equal to the amount of the decedents' ownership
interest in the property transferred to the survivor.
Property Tax Rule 462.040 . In 2003, the BOE promulgated rules
that allow certain individuals who jointly hold title to a home,
i.e., seniors or registered domestic partners, to be excluded
from changes in ownership if one of the co-owners dies.
However, according to Betty Yee, a BOE Board Member, these rules
proved to be cumbersome and costly to implement. This bill
would provide an alternative to the rule revision by creating an
exclusion for certain specified transfers of property.
The Proposed Exclusion . The exclusion created by this bill
applies only to transfers of principal residences where the
transfer occurs as the result of the death of one of two
co-tenants. The exclusion does not apply if two people shared a
principal residence but the survivor was not an owner of record,
i.e., his/her name was not on title to the property.
Furthermore, business entities are not eligible for this
exclusion, as it applies only to individuals.
Existing law already protects from property tax increase
transfers of real property between married people, registered
domestic partners, parents and their children, grandparents and
their grandchildren, and also joint tenants who are "original
transferors." This bill creates an exclusion from property tax
reassessment for transfers of interests in principal residences
between any two people who live together, including unmarried
people, persons who are not domestic registered partners,
siblings, friends, companions, or just roommates who share the
cost of housing. In all these cases, the co-owners could avail
themselves of the exclusion if the transfer is due to death of
one of the co-owners. While cognizant of the principals
underlying Proposition 13 and the tax policy behind this
measure, the Assembly Revenue and Taxation Committee staff is
concerned about creating a precedent for exempting a transfer of
real property from property tax reassessments in the case of
co-tenants who are not family members.
Sunset Date . This bill lacks a sunset date to allow periodic
legislative review of the tax exclusion. All prior bills
containing identical language included a 10-year sunset date.
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Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN: 0003376