INTRODUCTION
NOTE: Unless otherwise indicated, all statutory references in this chapter are to the California Revenue and
Taxation Code.
Questions concerning taxes and assessments are raised in most real estate transactions. Taxation is an indirect
yet significant controlling device affecting estimates of value. It is important for those engaged in the real estate
business to know the variety of taxes and their effect on property transfers. Discussion of the specific taxes
mentioned in this chapter is for reference purposes only and should not be relied upon as a substitute for
professional advice. Full consideration may involve retaining the services of accounting, legal and tax
specialists. There are many categories of property that may be exempt from taxation. The county assessor
should be consulted for a determination in this area.
Federal, state and local governments tax real property. Local governments assess taxes directly on the property,
such as ad valorem property taxes, special assessments and transfer taxes. Most state governments have an
income tax. The federal and state governments tax property indirectly through the taxation of ordinary and
capital gain on income earned from real estate. Federal and state governments also tax property indirectly when
it is transferred through an estate or gift to others, i.e., estate and gift taxes.
Taxes may act as a deterrent to many individuals desiring to acquire or dispose of real property. Unless tax
benefits and burdens and tax planning alternatives are seriously considered by persons contemplating the
purchase or sale of real estate, the anticipated benefits of ownership may not be realized, and losses may be
sustained.