Can I sell my home to a family member and then buy it back from them in order to reduce property taxes?

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Can I sell my home to a family member and then buy it back from them in order to reduce property taxes?

I would like to do this to lower my property taxes. Each party would get a loan for the current balance of the mortgage. The current balance would be the “asking price”. We would treat it just like if we were selling to a stranger each direction. Can we do this and if so how long do we have to wait between sales?

Asked on January 10, 2012 under Real Estate Law, California

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

There are several different problems with your scenario:

1) Most basically, confirm that recent sales either set assessed valuation for taxes or can be used in tax appeals--there are locations where property tax is not based off sale activity.

2) Even if you "treat it"as a stranger selling the home in each direction, that will almost certainly not work during a tax review or appeal. It is almost certain that the identify of the parties will come out, at which point you will be guilty of attempting to commit tax fraud. Note that the fact that you a) end up re-buying the home (which is VERY unusual) and b) will presumably be engaging in transactions at well below current market value for comps will be red flags to the tax authorities--assume they will look into this.

3) After you sell the house to your relatives, suppose they decide to keep it? How do you get it back? And if you have a "side agreement" with them that they must resell it--which agreement must be in writing to be enforceable (certain contracts must be written; those affecting real estate ownership are among them)--then this will not be treated as any sort of a bona fide sale.

If it was this easy to lower your taxes, everyone would do it. The fact that they don't strongly suggests there are issues and pitfalls.


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