Chapter 14
Introduction to
Taxation
Chapter 14
Describe the real property assessment
procedure as required by Proposition 13.
List the rules regarding the date and manner
of payment of real property taxes; describe
the tax sale procedure in the event of
nonpayment of property taxes.
Explain homeowners, veteran's, and senior
citizen's property tax exemptions.
List the income tax advantages of real estate
ownership, including the changes due to
recent revisions in the tax laws.
Ad Valorem According to
Value
Special Assessment
Taxes
1. For specific
purpose
2. Levied only
against properties
benefited
3. One-time tax
Proposition 13
PROPOSITION 13
Full Cash Value = $500,000
X 1% + local % = x 1.25%
Property Tax = $6,250
Ownership since March 1975
3/75 value + per yr. Max= present value
x 1% + local %
present tax
Upon ownership change
Current price paid (full cash value)
X 1% + local %
Present tax
New additions only taxed at current value on new
construction, not the entire property.
No Tax Change
Transfers between
spouses
Primary residence plus
first $1 million of real
property from parents to
their children
Propositions 60 & 90
Homeowners age 55 years and over
Allows the transfer of their low,
existing property tax base to another
home of equal or lower value
Jul
Sep
Nov
Dec
Feb
Apr
Jun
1
1
1
1
10
1
10
30
Jan 1 Becomes a lien on the property
- File tax exemptions prior
July 1
- Fiscal tax year begins
Sept 1 - Tax rate determined
Nov 1
- 1st installment due (Jul 1 Dec 31)
Dec 10 - 1st installment delinquent
Feb 1
- 2nd installment due (Jan 1 Jun 30)
Apr 10 - 2nd installment delinquent
Jun 30 - Fiscal tax year ends
Tax Sale
A 10% penalty added to each late
installment
June 8 delinquent tax list published
June 30 property Sold to state
Five-year redemption period
Un-redeemed property deeded to state
Tax collector publishes notice of intent
to sell
Public auction tax sale
Controllers tax deed
HOMEOWNERS EXEMPTION
Owner occupied by January 1 and filed by February
15
$7,000 off full cash value
$500,000 full cash value
-7,000 homeowners exempt
$493,000 taxable value
Saves approx. $70
($7,000 x 1%)
Special Assessments
Liens
Tax liens and assessments have
priority over all other liens.
Street Improvement Act of 1911
Assessments noted on tax bill
For streets, sidewalks, lighting,
water, sewer or benefit the owners
directly such as for neighborhood
parks, schools, and fire stations.
Mello-Roos
Community Facilities
Failure
disclose allows buyer a 3-day right
Act
of to
1982
INCOME TAXATION
State and federal income tax
A progressive tax
PERSONAL RESIDENCE
Interest Deduction
Major Tax Advantages for
Homeowners:
1. Subject to a $1 million
dollar limitation
2. The interest on money
borrowed to purchase a first
and second home is fully
deductible against the
homeowners income
3. Property taxes paid are
deductible against personal
income
No taxable gain
recognized
on
Homeowners may claim an exception from taxation
on profit from the sale of their personal residence
Residence
Installment sale
Sale with down payment & loan.
Income tax is due as loan is repaid
over term.
Income Property
Annual Deduction
Operating Expenses
T Taxes (Property)
I Insurance
M Maintenance
M Management
U Utilities
R Reserves for Replacement
Depreciation
27 years for residential income property
39 years for non-residential income
property
Investment property
Vacant land (unimproved property)
Trade or Business
Property
1031 TaxDeferred
Exchanges
1. Pay no taxes at time of equal exchange
2.
3.
4.
+ $25,000 cash
Value $200,000
Basis
100,000
Mortgage 50,000
Value $300,000
Basis
150,000
Mortgage 75,000
Non-personal
residence
Exchange IRC 1031