One of the benefits of living in California is Proposition 13, the 1975 law which reduced property taxes from 2% of value to 1%, and limited tax increases to 2% of the 1975 value with limited Cost of Living Adjustments. To top it off, you can pass the low tax rate down to succeeding generations – without limit. It is, arguably, how Californians are able to ‘cash out’ and get big paydays when they sell and move to greener pastures (a/k/a Oregon or Washington). There is no limit to the value of a personal residence transferred from parent to child (or, if the intervening generation is dead, grandparent to grandchild), though non-personal residence property is limited to a sum value of $1.0 million (amounts above that are taxed).

Now, however, that may be coming to a crashing halt. In a recent, low-key lawsuit mentioned in this article, the IRS is attempting to get at the Board of Equalization’s (BOE) records of property transfers. See, to get the ‘rate’ you need to file a form (BOE-502), which gets sent to the BOE for recordkeeping. The BOE has pushed back, citing privacy laws, but the IRS insists its entitled to the records.

If successful with the admitted ‘fishing expedition,’ look for the IRS to start going after taxpayers who have filed a BOE-502, but not an estate or gift tax return. Granted, many of the BOE-502s that we do are for estates that do not need a tax return, so the IRS may find a whole lot of nothing. But the guess is that there are a fair amount of noncompliant transfers, and that enough money is at stake to make it worthwhile.

Stay tuned. And if you’re a California property owner who received property in such a transfer, you’ve been warned. If you’re not sure if you should be concerned, contact our office to schedule a consultation.