Property tax deferral is a provision of the law that allows eligible homeowners to delay the mandatory payment of part of their property tax every year until the house in question is sold, at which time the deferred taxes are paid from the sale proceeds. Deferred property taxes is treated as a secured, low-interest loan which the state makes up to counties with a revolving fund. The loan is held as a lien against the property. The loan can be repaid at any time and must be paid when the house is sold or when the taxpayer ceases to qualify for Property Tax Deferral.
Who Is Qualified for Property Tax Deferral?
Persons who may qualify for property tax deferral include:
a. seniors who are 55 years or older in the current year
b. persons with disabilities
c. a surviving spouse of any age
d. persons who are in active military service.
Meanwhile, each state can outline persons who can qualify for the program.
The Significance of Property Tax Deferral
Deferred property taxes give homeowners some of their cash now instead of making them wait until the home is sold. Homeowners could use the money that could have been spent for tax payments to meet their needs, only to repay the taxes when it is convenient or from the sale proceeds of the sale proceeds of the home.
Property tax deferral enables property taxpayers to know that the state is making efforts to help them as the state makes the tax payments to the county from a revolving fund each year.
Property tax deferral makes property tax more progressive or cumulative instead of regressive. In other words, the taxes are allowed to add up and be payable as a lump sum when the owners could afford to pay or when the property is sold off.
Property Tax Deferral Program
Deferred property taxes program allows seniors, active military personnel, and a certain category of people to defer the payment of their property taxes. The requirements for eligibility are usually outlined to prevent persons who do not qualify from applying for the program.
The state sees the deferred property taxes as a loan, which is expected to be repaid with interest when the house is sold, when the taxpayer does not qualify for the program again or when the taxpayer passes on.
a. Senior Deferral Program
This is a deferred property taxes program meant for senior citizens to postpone their tax payments until they sell the property, after the settlement of their estate after their death, interest is charged to the amount deferred. Seniors can postpone part or total payable taxes. The interest chargeable on the deferred tax could be as slow as 2.25%.
1. Applicant must be at least 65 years old in the current year.
2. Applicant must not be earning income from the property (like renting) but could have an office at home.
3. Applicants with an existing reverse mortgage cannot receive tax deferral.
4. If the property is in a TRUST, the applicant must be named the trustee and the beneficiary of the trust.
5. Applicant must submit the completed application to the treasurer’s office.
b. Active Military Personnel Deferral Program
This is a property tax deferral offered to active military personnel to postpone tax payments until the home is sold or transferred. Meanwhile, interest is charged on the amount of tax deferred. Just some parts or the entire property taxes can be delayed. The interest rate that is charged on this type of deferral program could be as low as 2.25%.
1. Applicant must have been called into the military service in the current year.
2. Applicant must not be earning income in the home like rental income, but you may have an office in the house.
3. Applicant must not have a reverse mortgage on the property.
4. If the property is in a trust, you can only apply if you are named as a beneficiary of the trust.
5. Submit the completed application to the treasurer’s office for review.
c. Deferred Property Taxes for Homeowners with Limited Income
Homeowners who are residents in a state can apply for property taxes deferral. The program allows homeowners of any age who have limited income to postpone tax payments. If approved, the deferred taxes become a lien against the home but in favor of the government.
In addition to being eligible for deferred property taxes, applicants must meet the following conditions:
a. Applicant must be the sole owner and reside in the home
b. Applicant must have owned the house for at least five years.
c. The homeowner’s total disposable income must be less than $57,000 (depending on the state).
d. The first half taxes must be paid
e. The total deferred amount must not exceed 40% of the owner’s equity with a compulsory proof of equity value must be provided.
f. The completed application must be submitted for review in the treasurer’s office.
g. No age requirement.
Tax Deferral Strategies for Property Investors
Investors of highly appreciated property can choose from a variety of tax strategies designed to defer real estate capital gains taxes.
Here are some of the strategies that can be applied for deferring property taxes
a. Defer the Recognition of Gain
You could complete a trade with less equity than your capital gain tax would have been. Structured Sale strategy allows an investor to structure the sale of real estate or any property and defer the real estate capital gain taxes, but not their depreciation recapture taxes, like an installment sale contract.
b. Debt Component to a Multi-property 1031 Exchange
Change the debt component of a multi-property 1031 tax exchange to 10% equity or less and use the cash to purchase another unleveraged property with value-added potential in a multi-property exchange.
c. Allow Deferred Tax Distributions
Defer payable taxes to increase your holdings with little equity.
d. Defer the Recognition Foreclosure Gain
A non-recourse foreclosure is considered as a sale by the IRS. If the loan balance is higher than the tax basis, a capital gain is recognized, and tax will be payable out of pocket. Defer paying the tax by buying net lease assets to maintain your before-tax net worth.
How Much Tax Can Be Deferred
Having registered for Property Tax Deferral program, the annual increase in the amount of property taxes will be deferred, and this is the difference between the tax imposed in the current year and the tax imposed in the base year.
We are California’s Property Taxes Deferral Company
Do you need help with deferred property taxes in California? CATD (California Trust Deed Investments) is an experienced company in California that specializes in property tax deferral. We help homeowners take advantage that the deferred property taxes offer. We will guide you through the application processing and assure you that your application will be approved. Contact us today or call us now at 818.865.1570 and have a respite. We are the affiliated experts in California, with our services you have nothing to worry about.