Orange, CA · Member since 2012 · 20 posts · 2 votes
Hi everyone,
I'm a soon-to-be first time homeowner once my father gives me a house he owns via a quitclaim deed. I am just wondering if there are any legal/financial (as far as taxes go) implications in answering "Yes" or "No" for "This property is intended as my principal residence."
I am planning on renting it once I make a few improvements on it, so should I select "No"? I am concerned because in case I want to sell the house at some point, I'd like to reduce my capital gains taxes as much as possible.
A principal residence can get a homestead discount on the property taxes in some jurisdictions. You're starting to let some money interfere with honesty here ...
A principal residence can get a homestead discount on the property taxes in some jurisdictions. You're starting to let some money interfere with honesty here ...
There may be some local issue or state tax issue, maybe a transfer tax applied to non-owner occupied, don't know, but Steve makes a good point, state your initial intentions.
Such a question is not part of a quit-claim deed to convey title, so what ever it is that you have asking the question must be related to local customs and requirements.
It's not at all my intention to be dishonest. I should have mentioned that I am currently living in the house. Basically, I would like the time I'm living in the house while fixing it up to start tolling for capital gains purposes, but I want to establish it as a rental, too, as soon as it becomes one, in case I want to do a 1013 exchange (which I'm much more likely to do than sell it). I'm just wondering if answering "yes" or "no" on the quitclaim has any implications for establishing intent either way. For instance, if I find it takes me longer than expected to prepare the property for rental (say, 6 months) I would like that time to have counted as my using the house as my primary residence, which it would be (I own/rent no other property and will have to find a place to live when I rent the house).
Hope that clarifies my question a bit. Again, thanks for any advice. :)
George Eliot The way I see it, you would answer yes. You're living there and its your primary residence at the time of the quit claim. I don't see that as being dishonest at all since you plan on living there while you ready the property. Now if you had someone living with you and paying rent, that's a different story.
George Eliot There is no question about residency on CA deeds. I think you must be referring to the Preliminary Change of Ownership Report? If so, that form doesn't have much to do with anything. It's useful and necessary to submit the form if the transfer exempts the property from a property tax reassessment. In this case, a gift from parent to child is exempt. That form is voluntary, and the rest of the information requested on it is just the assessor trying to gather information to which he isn't entitled. In fact, you can record your deed without that form by paying an additional $20.
Don't use a quit claim deed. Use a regular grant deed. Be advised that when you go to refinance or sell, an "uninsured deed" (a deed transfer without title insurance) may cause problems for you. Title companies will want to go back to the grantor for affidavits. Title companies don't overlook DIY deeds like they used to.
@Michael Pilarski Thanks for the advice; I feel better saying that it is my principal residence.
@K. Marie Poe Yes, I am referring to the Preliminary Change of Ownership Report. I am using it to exempt a property tax reassessment under Prop 58 since this is a parent to child transfer. In this case I must fill out the form, but can I fill out the form and leave that question blank?
As for doing a grant deed instead of a quit claim, I have read that a quit claim deed is best when the property is being gifted from a parent to a child. I did some online research but wasn't able to find additional information about using a grant deed in this case. Would you perhaps be able to point me to some resources?
Also, the Preliminary Change of Ownership asks me to list the date of occupancy. I have been living in this house for about two years; is the question asking when I began occupancy as owner or occupancy in general?
My main concern is that this form might make it difficult me to do a 1031 exchange down the road if I indicate that I intend to use the house as my principal residence. From what I've read, though, the IRS looks at tax returns to determine the legitimacy of a 1031 exchange, and so I don't need to worry about what this Preliminary Change of Report says; is that right?
Just want to make sure I'm not doing anything that will cause me difficulties down the road. Thank you SO much for your advice!
The PCOR is not public information and is not recorded. As I said, it has nothing to do with anything and is voluntary. If I were you I wouldn't submit it (I rarely do). I would pay the $20 to record the deed without it.
A grant deed is perfectly fine and preferred by title companies. The deed can have language that indicates it's a gift and that way you won't be paying transfer tax. The assessor can will see that it's a gift deed and not re-assess.
Your questions indicate that you really don't understand what you are doing and how RE transfers work. You may want to consider going to a legal services that will prepare the deed for you, for a few hundred dollars. Or, better yet, call a title company and use an escrow service.
K. Marie Poe Again, thanks SO much for the information! You are right; I don't at all know much about RE transfers, but am using the services of LegalZoom. They recommended I use a quit claim and never mentioned a grant deed (nor did I see that mentioned as commonly used for family transfers in my own cursory research).
I thought you had indicated I do need to submit the PCOR in order to avoid reassessment: "It's useful and necessary to submit the form if the transfer exempts the property from a property tax reassessment."
My father has already submitted the quit claim; do you know if it's possible at this point to also do a grant deed, or would I need to stop the quit claim process in order to do that? Again, thanks so much for patiently answering my questions. I really appreciate it.
Once the QD is filed it's granted, if you can stop the filing I would and seek legal advice. If the QD goes through, the only real issue will be title coverage, but it is done everyday. If the property is free of encumbrances a warranty deed should be used, if not, a special warranty deed subject to the encumbrance. Title insurance can be obtained to extend the existing coverage. Gifting language can be used in either deed as well. I agree with Marie, that if it;s optional, don't bother. The 1031 rules will apply from the date of ownership and your residency.
I have never used legalzoom, but I suppose you don't get advice, just a form!
Bill Gulley So if the quit claim goes through, I can still obtain title coverage, and that would effectively confer on me the same benefits as a warranty deed (grant deed here in CA) would have?
Yes, you can sell and yes you can still obtain coverage it may cost more. A new policy here is about $3.50/4.00 per thousand for an owners coverage plus the search.
Search "Quit Claim Deed title insurance" there was a long thread recently discussing the issues......Good luck
My father has already submitted the quit claim; do you know if it's possible at this point to also do a grant deed, or would I need to stop the quit claim process in order to do that? ...
Once your father's QCD is recorded, he has given up all rights to the property - that is what a QCD does, and that's why it gets used. Since he no longer has any rights in the property, he can no longer convey a grant deed, or at least any grant deed would be suspect due to his already rescinding rights via QCD!
Bill Gulley and Steve Babiak I am going to call Legal Zoom on Monday and attempt to change to a grant deed. Is it still recommended that I speak to an attorney or is this situation simple enough that doing it myself through Legal Zoom should suffice?
Thanks again for taking the time to respond. Your advice has been invaluable.
Use a warranty deed, if the is a loan on it or any encumbrance, use a special warranty deed subject to the existing liens. Check with you tax advisor as to gifting and any transaction taxes. Keep in mind, Legal Zoom sells forms and documents, who you talk to may not know the differences in deeds or tax issues in your case. See who your dad has title coverage with and see what they will do as the costs should/could be less bringing title current to you. Good luck
IMHO, in the world of real estate, there is nothing more important than deeds and title. So I wouldn't use a forms company to secure my legal right to the property. I'd use an attorney if you don't know what you're doing, or a title company (if allowed in your state) if you do know what you're doing.
You're trying to save a few bucks and risking thousands.
Bill Gulley The house is owned by my father free and clear; the mortgage has been paid completely. Do I still need to seek title coverage if I use a grant deed (I believe here in CA it possible to only do grant deeds, not warranty deeds)?
Yes, Legal Zoom doesn't give any legal advice; they just offer various forms.
Ann Bellamy Thanks for the advice. I don't know what I'm doing :) and so will contact an attorney on Monday.
Bill Gulley I called several attorneys and all of them told me that I do not need to go through an attorney for this process. They said I simply need to contact a title company and do it myself. Does that sound right to you?
Absolutely, if there are no real tax issues or estate issues you can certainly go to a title company (and should) so you can address the title insurance issues as well. Again, I suggest the current title inusrer as you may be able to have some credits for this transfer. Good luck
Bill Gulley I can't thank you enough for your prompt responses. :) The only tax issue is the property tax reassessment exemption allowed by Prop 58. Still a green light for doing it myself via the title insurance company? Also, my father doesn't seem to remember who the current title company is... do you know how I might find out this information?
Okay, look at the Book and Page number of the filing of your last deed to the property and you will generally see the closing agent/title company who notarized the deed, ask the clerk in the Recorder's Office who that notary works with or look them up through the Secretary fo State for notary registrations. That could turn into a person search if it was a long time ago. The address may also be shown on the deed for mailng purposes.
You may also track it down by getting back with your dad's Realtor if it wasn't too long ago as they will have records of the closing.
You may need the policy number to direct the title insurance company to your policy, but make them do it as to the name, address and book and page of the filing. It may be more trouble than it's worth too, just go to any title company.
That's what safe deposit boxes are for, important documents, but not life insurance policies. LOL
Bill Gulley I can't thank you enough for all the help. I'm in the process of trying to track down the documents you mentioned, but unfortunately my father is incredibly disorganized and has no idea where any of his records are. In case I can't find the current title company, do you have any recommendations for finding a good, reputable one here in southern California?
Bill Gulley I see, so there's nothing to look out for or worry about as far as finding a reputable title company goes? Just want to make sure since I'm doing this myself, that I do it right. :)