Real Estate Law
For most individuals, families, and business owners, real estate represents a major part of their total overall assets and net worth. We provide our clients with a wide range of services in this area which focus on helping our clients avoid the legal pitfalls associated with real estate ownership and transactions; maximize tax advantages; and assure the bottom line profitability on our client’s real estate holdings.
Our litigation attorneys provide representation on a wide variety of lawsuits relating to real estate and real estate professionals. The scope of claims we have experience with range from defending real estate professionals accused of fraud, to defending sellers in “failure to disclose” lawsuits.
- Broker Defense
- Commercial Development
- Construction Contracts
- Contract Agreements Preparation & Review
- Deed Preparation
- Escrow and Escrow Litigation
- Fiduciary Duties
- Financing Review & Analysis
- Home Owner Association
- Joint Venture Agreement
- Landlord/Tenant Disputes
- Lease Agreements Preparation & Review
- Limited Liability Company (LLC) formation
- Municipal Law
- Neighbor Dispute
- Partnership Agreements
- Preparation and Review of Lease and Contract Agreements
- Property Law
- Property Tax Reassessment Issues & Defense
- Real Estate Entity Funding
- Real Estate Fraud
- Real Property
- Real Property Litigation
- Residential Real Estate
- Sales & Acquisitions Agreements
- Title Review & Analysis
WHY SHOULD MY HUSBAND AND I HOLD TITLE TO OUR HOME AS COMMUNITY PROPERTY?
In California, or any other community property state, if you were married while your home mortgage was paid off using one of the spouse’s salaries, it will be considered community property. However, there are good reasons to hold your home as community property rather than as joint tenants. The biggest advantage is receiving a step-up in basis for 100% of all community property assets at the death of the first spouse, rather than only a step up of the 50% held by the decedent if a joint tenant. By holding the property as community property, each spouse is deemed to own the entirety of the property. Therefore, when a spouse dies the entire property receives a step up in basis. If the property were held as joint tenants, the decedent spouse would only own 50% of the property at death, and therefore would only receive a step-up in basis for that 50%.
Let’s say a couple purchased their home with their spouse for $500,000. After 30 years, the home is now worth $5,000,000. At this time the basis in the house is $500,000. If the house was sold the couple would pay capital gains on $4,500,000. Now let’s say one spouse dies. If the property were held as joint tenants, the deceased spouse would own 50% of the property and that 50% would receive a basis step up. Therefore, the deceased spouse’s interest would have a basis of $2,500,000, and the surviving spouse’s interest would still have a basis of $250,000, giving us a total basis in the property of $2,750,000. If the surviving spouse then sold the property, capital gains tax would be paid on $2,250,000. But, if the property is held as community property, the deceased spouse is a deemed owner of the entire property at death, and the entire property receives a step-up in basis to $5,000,000. If the surviving spouse now sells the property, there are no capital gains taxes paid.
HOW SHOULD I HOLD TITLE TO MY RENTAL PROPERTY?
Rental properties can be an excellent source of passive income. Many people acquire rental properties to supplement their income before and after retirement. However, liability is also very high with rental properties because there are other people living on land owned by you. If something happens on the property and a lawsuit is likely filed. The owner of the property will almost always be named in the lawsuit, whether you had anything to do with the incident or not. The manner in which title is held to these properties is very important. If you are named personally as the owner of the property, all of your personal assets become liable to the lawsuit as soon as you are named in the lawsuit. Your liability can be dramatically reduced, however, with the use of a limited liability company. By holding the rental property in a limited liability company, you may be able to contain the liability exposure to the property itself. The limited liability company would be the entity named in the lawsuit, and only the assets of the limited liability company would be specifically exposed to the lawsuit in most cases.
Limited liability companies are a very flexible form of corporate entity that allows you to manage the assets inside the company while protecting your personal assets from the liability of anything that occurs with the assets inside the company. This allows you to have complete control without risking your home and retirement to a law suit.
WHAT IS A 1031 EXCHANGE?
A 1031 exchange refers to the Internal Revenue Code Section 1031 (a)(1) which allows a person to avoid recognition of capital gains on the sale of an investment property, if the money from the sale is then used to purchase another “like-kind” investment property. This is basically an exemption that allows investors to not have to realize capital gain now if they are not going to actually receive any cash from the deal. However, the new property will be taken by the investor at the original basis of the old building. The investor is simply delaying the realization of capital gains until the building is sold and the money is not reinvested.
I JUST INHERITED MY PARENT’S HOME. HOW MUCH ARE THE PROPERTY TAXES GOING TO INCREASE?
Propositions 58 provides that the primary residence plus up to $1,000,000 of assessed value of other real property can be transferred from one parent to child(ren) free of any property tax reassessment. Property passed from parent to child or from children to parents can be excluded from reassessment. The established proposition 13 taxable value is not affected by the transfer. The exclusion is not automatic, however, and a timely filed claim must be filed with the Assessor’s office. The children’s property taxes are calculated on the established Proposition 13 factored value, instead of the current market value when the property is acquired. An important thing to remember is that transfers from a legal entity, such as a limited liability company owned by the parents will not qualify for the exclusion.
Therefore, if you inherited your parent’s home (in California) and it was owned in their names before their passing, the property taxes will be unchanged so long as proper filings are timely made.