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Posted On: 07/28/2010

QUESTION:

I live in California, and I'm fed up with paying taxes. If I can find somebody I trust, and we both don't have liens, can I sell my property for a miniscule amount and the second party sell his to me for a miniscule amount to reduce property taxes? Then. in a year or less, we sell back to each other.

ANSWER:

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I have little doubt that this would be regarded as a questionable transaction because it does not involve an arms-length relationship between the parties and the sale prices do not represent fair market values. No less important, it will not produce the tax relief you seek.

When homes are assessed, they're valued in the context of comparable sales of nearby properties. If an assessor sees that there have been a few transactions at $400,000 for homes with three bedrooms and two baths in a subdivision and also one sale at $100,000, you can bet the low transaction will be chucked out.

A good example of this concept is the valuation of a property sold by parents to an adult child for "good consideration," that is, love and affection. The home is sold for $1 but the assessment does not go down because the fair market value is unchanged. If the property was sold to you or me, it will be sold for what it's really worth, and that's going to be a lot more than $1.

No less important, there are big settlement costs when titles change hands. Mortgages would have to be paid off if the properties are not lien-free - and if the sale value is less than the mortgage amount owners would have to bring cash to closing. By the time you're done it will be cheaper and easier to pay the taxes, organize your friends, and vote for the individuals and tax policies you prefer.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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