Legal Question in Real Estate Law in California

Yes and no. There are several aspects of such a transaction.

1. The IRS requires that sales between family members be "at arms length", as though it was a sale among strangers. He would not sell the condo for anything less than the fair market value to someone else. So if he reports on his income taxes that he sold it for $1, and then substracts out the previous payments that represent his basis in the property so that there is a large loss, the IRS will reject the sale as being phoney.

2. The tax assessor goes on what the fair market value is; the sale's price is one indicator of the f.m.v. but would be rejected if it cleraly is below the fmv.

3. The IRS might review the rest of his tax return expecting fraud in ohter areas.

4. If he has lived there 2 of the last 5 years as his permanent residence, he can shelter $125,000 to $250,000 of profit from capital gains taxes.

5. He can ask the assessor to lower the assessed value based upon what similar unlits in the area have sold for.

6. If you buy it for $1, when you sell it your basis is $1.

7. If you get it as an inheritance when he dies, you get a stepped up basis to what the fmv was on his date of death, so you could sell it the next day and might have to pay no taxes at all if the "profit" was $100,000, that would be a $15,000 savings.

8. Almost all lawyers agree never give real estate to a child while you are alive, give it in your Will or Trust. Children sometilmes tur against their parants, marry undesireable spouces, have their own tax problems, etc.

9. Sale of the property results in county and city property tax transfer fees.

10. Wether he can transfer it out of his Trust depends upon the language of the Trust.

Mr. Shers covered most of the issues, but his answer is wrong. It is not "yes and no." The answer is, "Yes, you are completely right." The whole thing will completely backfire on your father. The property taxes will go up, not down, unless the property has lost value since he bought it. But if that has happened, he has a right to have it reassessed to the current market value anyway. One more issue that Mr. Shers did not coveer is that the IRS will treat the transfer as a gift and charge your father gift tax based on the fair market value of the property. Lastly, if your father has a mortgage on the property, selling it to you or transferring it to you by any means will trigger a due on sale clause that is in 99.99% of all mortgages. You and he would then have to refinance the mortgage and you would have to qualify for the new loan by yourself, because no lender will lend to your father on a mortgage loan when he no longer owns the property.

I agree with Mr. McCormick regarding you are completely correct. The county would consider it a sham transaction, too, and simply reassess the property to current value.