A few years ago, I co-signed on a mortgage for a family member when they refinanced their property (income was not high enough to qualify on their own). During this process, I was placed on the property deed. Now, the property has appreciated significantly, and their income is now high enough to qualify on their own. They plan on re-financing again and removing me from the mortgage. The family member has also recently married so they planned on replacing me on the deed with the new spouse. However, we want to make sure this is also the correct overall strategy from a tax perspective and that the property will not be re-assessed during this process.
We plan on working with a local CPA / attorney on this strategy but want to get some general feedback on: Is there any risk of property tax re-assessment while going through this process? Doing the refi and the title transfer at the same time seems like most logical, is there any drawback to handling this way versus doing them individually? Any other factors that should be considered during this process? (Property is in Alameda County, California)
Hi @Tim McGarvey - part of the question will be how you hold title. As I understand this article from the Alameda Assessor, your percentage of ownership will be reassessed when you're removed - from their perspective, it's as if you sold your stake. So, if you're 50/50 on title now, half the value will be reset and taxed at today's valuation.
You'll obviously need to run this past your CPA/attorney, but one idea would be for you to remain on title after the refi and then have the property transferred into a trust where your family member and their spouse would be the trustees. Because of how expensive probate is in California, properties are transferred into trusts all the time and it shouldn't trigger a reassessment.
How do you hold title? If tenants in common, how big of a percentage ownership do you hold? Have you considered gift tax issues over the years and been reporting gifts? I assume it is not held in an entity of some kind. Is this the family member's personal residence? Yes, it is possible that removing you from title could create property tax reassessment.
*This post does not create an attorney-client or CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.