Legal Question in Tax Law in California
What amount/rate of property tax can we expect the state of California and the Fed to impose on a Trust land sale? Property was last appraised in the 1950's, and is now being appraised again for the sale (the trustor passed away in 12/2011). Trust executor has informed the beneficiaries that should the property sell for more than the appraised value (no matter what that value may be), the trust will be taxed. The land value is not expected to exceed $1.5 million. Executor has done precious little to inspire confidence in the past, and the tax issue doesn't sound right to me (thought that Trusts were not taxed if valued less than $5 million in 2011), but I am not knowledgeable about property taxes as applied to a Trust and would like to be somewhat informed prior to discussion of this matter. Many thanks in advance for your assistance and advice.
1 Answer from Attorneys
You are mixing up property tax, income tax and estate tax. They are all separate issues.
It seems that your main concern is income tax.. the difference between the tax basis of the real property and the net sales price is taxed for income tax purposes. That will be at capital gain rates. Without considering alternative minimum taxes, the capital gain rate, federally, is 15% right now. Also, if the Trustee makes a distribution in the same year as the sale to the beneficiaries, then the trust is not taxed, but, the gain on sale is passed through to the beneficiaries, and they are taxes at those capital gain rates.
The estate tax is dealing with a $5 million dollar or greater size estate.
Property taxes will go up if the beneficiary (ies) to receive the real property are not persons who would be exempt under prop 13, like a transfer from a parent to a child... or if on other than a residence, the value exceeds $1,000,000.
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