Can I sell my home to a family member and then buy it back from them in order to reduce property taxes?

UPDATED: Jan 10, 2012

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Can I sell my home to a family member and then buy it back from them in order to reduce property taxes?

I would like to do this to lower my property taxes. Each party would get a loan for the current balance of the mortgage. The current balance would be the “asking price”. We would treat it just like if we were selling to a stranger each direction. Can we do this and if so how long do we have to wait between sales?

Asked on January 10, 2012 under Real Estate Law, California


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

There are several different problems with your scenario:

1) Most basically, confirm that recent sales either set assessed valuation for taxes or can be used in tax appeals--there are locations where property tax is not based off sale activity.

2) Even if you "treat it"as a stranger selling the home in each direction, that will almost certainly not work during a tax review or appeal. It is almost certain that the identify of the parties will come out, at which point you will be guilty of attempting to commit tax fraud. Note that the fact that you a) end up re-buying the home (which is VERY unusual) and b) will presumably be engaging in transactions at well below current market value for comps will be red flags to the tax authorities--assume they will look into this.

3) After you sell the house to your relatives, suppose they decide to keep it? How do you get it back? And if you have a "side agreement" with them that they must resell it--which agreement must be in writing to be enforceable (certain contracts must be written; those affecting real estate ownership are among them)--then this will not be treated as any sort of a bona fide sale.

If it was this easy to lower your taxes, everyone would do it. The fact that they don't strongly suggests there are issues and pitfalls.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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