Property Tax: Ten Counties Allow Intercounty Base Year Value Transfers

Effective November 20, 2014, 10 California counties will have property tax ordinances implementing the intercounty base year value transfer provisions for persons who are at least age 55 or are severely and permanently disabled. The counties are Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, and Ventura. The latest county to be added was San Bernardino, which adopted an ordinance in October 2014 that applies to replacement dwellings that are purchased or newly constructed in the county on or after January 1, 2014.  Be careful when deciding where to move because numerous counties do not honor the base year transfer.

If you or your client is at least age 55 and is considering whether to  move to a new residence be sure to contact a property tax expert to make sure you don't lose your low property tax base.  The  Wilson Tax Law Group specializes in property tax and income tax matters. Please contact Joseph P. Wilson at 714-463-4430 if you have any questions.

Property Tax: Ten Counties Allow Intercounty Base Year Value Transfers

Effective November 20, 2014, 10 California counties will have property tax ordinances implementing the intercounty base year value transfer provisions for persons who are at least age 55 or are severely and permanently disabled. The counties are Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, and Ventura. The latest county to be added was San Bernardino, which adopted an ordinance in October 2014 that applies to replacement dwellings that are purchased or newly constructed in the county on or after January 1, 2014.  Be careful when deciding where to move because numerous counties do not honor the base year transfer.

If you or your client is at least age 55 and is considering whether to  move to a new residence be sure to contact a property tax expert to make sure you don't lose your low property tax base.  The  Wilson Tax Law Group specializes in property tax and income tax matters. Please contact Joseph P. Wilson at 714-463-4430 if you have any questions.

California—Property Tax: Solar Energy System Exclusion Extended

In California there are basically two ways that your property taxes can be reassessed at full market value. One is when you sell or purchase the real property. The second is if you have new construction or have a major addition to the real property. There are numerous tax incentives both in California and at the Federal level to promote green energy. One such incentive includes the California property tax rules which were amended to provide an exclusion from classification as newly constructed for the construction or addition of an active solar energy system. Thus, if you install a solar energy system on your rooftop that will not cause your property taxes to increases because of new construction. The exclusion however was set to expire in 2015-16. The good news is that the exclusion has been extended and now applies to property tax lien dates through 2023-24 fiscal year. Under the new amendments the exclusion is repealed January 1, 2025 (formerly 2017). Therefore, active solar energy systems that qualify for the exclusion prior to January 1, 2025 (formerly, 2017) will continue to be excluded on and after that date until there is a subsequent change in ownership. See S.B. 871, Laws 2014, effective June 20, 2014. This is great news for anyone interested in installing a solar energy system because your property tax base will not be reassessed at fair market value and it will continue to increase at no more than 2 percent per year under Proposition 13. That is as long as Proposition 13 does not get repealed or amended.

If you are an owner of real estate or solar energy provider in California and have questions about property taxes or other types of solar tax incentives, please contact the Wilson Tax Law Group. We can be reached 714-463-4430.

California—Property Tax: Solar Energy System Exclusion Extended

In California there are basically two ways that your property taxes can be reassessed at full market value. One is when you sell or purchase the real property. The second is if you have new construction or have a major addition to the real property. There are numerous tax incentives both in California and at the Federal level to promote green energy. One such incentive includes the California property tax rules which were amended to provide an exclusion from classification as newly constructed for the construction or addition of an active solar energy system. Thus, if you install a solar energy system on your rooftop that will not cause your property taxes to increases because of new construction. The exclusion however was set to expire in 2015-16. The good news is that the exclusion has been extended and now applies to property tax lien dates through 2023-24 fiscal year. Under the new amendments the exclusion is repealed January 1, 2025 (formerly 2017). Therefore, active solar energy systems that qualify for the exclusion prior to January 1, 2025 (formerly, 2017) will continue to be excluded on and after that date until there is a subsequent change in ownership. See S.B. 871, Laws 2014, effective June 20, 2014. This is great news for anyone interested in installing a solar energy system because your property tax base will not be reassessed at fair market value and it will continue to increase at no more than 2 percent per year under Proposition 13. That is as long as Proposition 13 does not get repealed or amended.

If you are an owner of real estate or solar energy provider in California and have questions about property taxes or other types of solar tax incentives, please contact the Wilson Tax Law Group. We can be reached 714-463-4430.

Tax Court Draws Bright Line in Completed Contract Method of Accounting Cases

What the Tax Court gives with one hand, it can take away with the other.

That's the lesson one can learn from the pair of cases issued this year dealing with the completed contract method of accounting (CCM).  The Tax Court's opinion in Shea Homes, Inc. v. Commissioner, 142 T.C. No.3 (2014) was a great win for large-scale home developers like Shea Homes whose contracts to build and develop entire communities can take several years to complete.  The IRS had taken the unfortunate position that Shea Homes' contracts were not long term contracts and that the infrastructure improvements to the roads and building community areas were not included in determining when the contract was completed - which would have forced Shea Homes to recognize all of its income before knowing how much it would ultimately have in expenses.  It was a resounding victory for Shea Homes, though, as the Tax Court found that they were long term home-construction contracts and the contracts were not completed in earlier years when the contracts closed escrow.  The Tax Court relied on the facts that the community areas and the infrastructure were part of their contracts with the ultimate home purchasers and held that those costs were properly included in the tests to determine whether the CCM could be used and when the contracts were completed.  A broad reading of that opinion could have been used to support the proposition that builders who only did infrastructure and community improvements could also use the CCM.

That is, until the Tax Court issued its recent opinion in Howard Hughes Company, LLC v. Commissioner, 142 T.C. No. 20 (2014).  In what appeared to be less of a sequel and more of a two-part movie, the Tax Court drew a bright line to exclude builders who build infrastructure and community areas, but don't also construct homes, from the test.  The Tax Court made no bones about it, saying:

"Our Opinion today draws a bright line.  A taxpayer's contract can qualify as a home construction contract only if the taxpayer builds... or installs integral components to dwelling units... .  It is not enough for the taxpayer to merely pave the road leading to the home, though that may be necessary to the ultimate sale and use of a home."

While there is some logic to the Tax Court's opinion, a plain reading of the regulations and the statute don't give this tax attorney the sense that they are so narrow.  Especially in light of the proposed regulations which would broaden the costs that can be included.  Proposed Income Tax Regs., 73 Fed. Reg. 45182 (Aug. 4, 2008) (I don't buy the idea that the IRS can, on the one hand, issue regulations but, on the other hand, say that the regulation is not supported by the terms of the statute.  Chevron, anyone?  Separation of powers?).  I think we can expect the taxpayers in Hughes to appeal, so there will certainly be more to the story.  Stay posted.

If you are in need of an attorney on this or any other tax issue, you can contact our Newport Beach Tax Lawyer at wilsontaxlaw.com

Tax Court Draws Bright Line in Completed Contract Method of Accounting Cases

What the Tax Court gives with one hand, it can take away with the other.

That's the lesson one can learn from the pair of cases issued this year dealing with the completed contract method of accounting (CCM).  The Tax Court's opinion in Shea Homes, Inc. v. Commissioner, 142 T.C. No.3 (2014) was a great win for large-scale home developers like Shea Homes whose contracts to build and develop entire communities can take several years to complete.  The IRS had taken the unfortunate position that Shea Homes' contracts were not long term contracts and that the infrastructure improvements to the roads and building community areas were not included in determining when the contract was completed - which would have forced Shea Homes to recognize all of its income before knowing how much it would ultimately have in expenses.  It was a resounding victory for Shea Homes, though, as the Tax Court found that they were long term home-construction contracts and the contracts were not completed in earlier years when the contracts closed escrow.  The Tax Court relied on the facts that the community areas and the infrastructure were part of their contracts with the ultimate home purchasers and held that those costs were properly included in the tests to determine whether the CCM could be used and when the contracts were completed.  A broad reading of that opinion could have been used to support the proposition that builders who only did infrastructure and community improvements could also use the CCM.

That is, until the Tax Court issued its recent opinion in Howard Hughes Company, LLC v. Commissioner, 142 T.C. No. 20 (2014).  In what appeared to be less of a sequel and more of a two-part movie, the Tax Court drew a bright line to exclude builders who build infrastructure and community areas, but don't also construct homes, from the test.  The Tax Court made no bones about it, saying:

"Our Opinion today draws a bright line.  A taxpayer's contract can qualify as a home construction contract only if the taxpayer builds... or installs integral components to dwelling units... .  It is not enough for the taxpayer to merely pave the road leading to the home, though that may be necessary to the ultimate sale and use of a home."

While there is some logic to the Tax Court's opinion, a plain reading of the regulations and the statute don't give this tax attorney the sense that they are so narrow.  Especially in light of the proposed regulations which would broaden the costs that can be included.  Proposed Income Tax Regs., 73 Fed. Reg. 45182 (Aug. 4, 2008) (I don't buy the idea that the IRS can, on the one hand, issue regulations but, on the other hand, say that the regulation is not supported by the terms of the statute.  Chevron, anyone?  Separation of powers?).  I think we can expect the taxpayers in Hughes to appeal, so there will certainly be more to the story.  Stay posted.

If you are in need of an attorney on this or any other tax issue, you can contact our Newport Beach Tax Lawyer at wilsontaxlaw.com