A plugged-in reader seeks an answer we can’t definitively provide. And if you own (or plan to own) a TIC, it might be a question you’ll one day ponder as well:
I own a TIC unit and recently received with my property tax assessment a “Request for Notification of Individual Assessed Value for TIC units.” One who elects the “individual assessed value” option must provide the Assessor with property-attribute information about the individual units in his or her building (size, # of bedrooms and bathrooms, etc.).
As other [plugged-in readers] have noted, the movement toward “individual assessment” of TIC units has had the support of Plan C, a generally sensible organization. I wonder, though, whether the assessor may have something devious up his sleeve. The FAQ sheet which was provided with the Request for Notification says this in response to the question, “Will my assessment change?”:
“Generally NO. Your assessment is based upon the fair market value of your unit at the time of transfer or sale, plus any annual inflationary adjustments mandated by law. In rare instances, due to lack of information past TIC assessments may have been incorrectly calculated. The assessor will only correct the assessment prospectively.”
I’m quite curious about the “rare instances” contemplated by the Assessor. One can imagine the Assessor trying to use this information to catch insider deals where property is sold to an acquaintance or family member for below market value (perhaps with fraudulent side payments). But if that’s the goal, the mechanism is not well designed, because TIC owners are under no obligation to provide the Assessor with the information requested in the “indivualized assessment” form.
For honest TIC owners, is there any downside to providing the requested information? (There is not much upside: Under the regime of “individualized assessments,” each TIC partner will receive a tax bill specific to his or her unit, though the TIC partnership as an entity will continue to be on the hook for each partner’s assessment in the event of default.)
We don’t see it (the downside to providing the information that is), but we’ll welcome the thoughts of any readers who can answer definitively or otherwise.
I can’t directly comment on the assessor’s intentions, as I am not the assessor. But, I am in the same boat as the querier as I own a TIC myself.
I would probably take the assessor’s explanation at face value. If you look in the rolls available at sites like property shark, the attributes of the property are usually absent, if not simply incorrect. Most likely, the assessor has no idea how many bedrooms there are in your individual unit, because it has never been assessed independently of every other unit.
Yes, some people will probably get reassessed higher than the recorded value due to below market sales. However, it would cause quite an uprising if they suddenly decided to use property attributes on every TIC assessment while keeping assessments on SFRs based on the sale price. And, besides, what’s a better measure of market value than the sale price?
And, as the reader indicates, if the assessor is really trying to be devious, they are doing a horrible job since the information is optional.
In reality, I think they are merely trying to fill in the missing information, nothing more.
So, what currently happens when a TIC unit is bought and sold? Probably nothing… the building does not get reassessed and the property taxes remain the same under prop 13.
However, now… everytime a TIC turns over, the city gets to reassess that individual unit and over time… increase the amount of property tax revenue earned.
JR-
Actually, when a TIC unit is sold now, the sale is reported to the assessor, who reassesses the building as the sum of the most recent sale prices of all units in the building.
Typically, TIC agreements are written such that people pay the property tax portion equal to their fraction of the total sum sale price of the building, so their amount doesn’t increase when others sell their units.
I was under the impression that a 5 units TIC building gets 1 bill. Is it going to be 5 separter bills now?????????
interesting topic, I mentioned it before.
I think it’s a positive step, which can make handling a TIC easier.
Related we are in a TIC, our original partner sold his unit.
using fake numbers here, but lets say
Building purchased for 500K, split 60/40. He sold his 40% interest in the building for 480K, and yet the building was never reassesed. So it still remains taxed at 500K, the new owners are way under the tax for the propery
BOB, I wish I ws that lucky new comer. Did not mean to probe into your privacy, but let’s city finds out somehow some day, can they go after the years that they missed?????
Well it would be on them and not me, so it matters not to me. I’m sure the city could come back, but I have a feeling it came down to how the sale was recorded. Who knows, we’re ready for CC&R’s so going condo in the next couple of months, that’ll be the next fun part.
The assessor, Phil Ting, is a straight shooter, btw. I rather doubt it is a “devious” action. The above explanations seem right on to me.
but I have a feeling it came down to how the sale was recorded
BDB, what does it mean? That the sales was not recorded and that is why the assessment never changed??
No it was recorded, Its my only explanation why almost 2 years later, there has not been a special assessment or whatever normally comes to bring your prop tax up to the correct level.
OK, thanks. I am actually very surprised how inefficient the assessor’s office is.
I bought a condo back in Apr, I called to request a duplicate of the 2009 notice letter, and I was transferred to 5 different people and did not get i was calling for. you would think that that is a simple request.
They are very confused on anything and everything.
I’m a CPA that does accounting work for TICs, and by far the biggest source of confusion is property taxes, almost always because the Assessor takes 18-24 months to re-assess after a transfer. What the Assessor is proposing to do comes from good intentions, but it’s worthless for two reasons. First, his office is just trying to get more information because they’ve screwed up assessments in the past. I know of a couple of buildings for whom re-assessments are complete and they’re still not valued at the aggregated sales prices.
Second, there’s no value added here for homeowners. Co-tenants should be able to track their relative value percentages more accurately than the Assessor. The original comment noted that “each TIC partner will receive a tax bill specific to his or her unit”. Not true. Each partner will receive a separate assessed value for his/her unit from the Assessor, but there will still be, and always will be, one tax bill from the Tax Collector because it’s one parcel.
The idea sounds nice at first, but it’s nothing more than a fishing exercise and a political ploy to throw a bone to TIC owners to try to get us to forget the mountains of tenant-friendly and anti-ownership legislation the City has enacted in recent years. And it’ll make things more complicated when they come up with individual values that differ from HOA records.
Ted, I am laughing here, not at your posting, but at the City.
The whole TIC thing is rediculous, benefited no one except some banks. Finally, it is remedy time for TIC owners if/when their properties are under accessed.
Ted – Thanks for the clarification. I was wondering how and why this was happening since, as you point out, the entire building is still just one parcel (with one tax bill).
Tic’s are soon to join the ranks of co-ops and Condos. Mark my words, it will be the live-work loft debate of the next decade. The incentives to use the DEVICE of a TIC arrangement will eventually outweigh the downside of that option (versus Condo/Co-op). So what we see the assessor doing is part of the evolution of TIC’s as a home ownership tool. Expect the anti-home ownership mafia (Sue Hestor & Co.) to start crying about this shortly.
Ted,
When the city got caught up with the assessment in 18-24 months, do they get to bill for the 24 months that already passed?
To answer 11223’s question, “yes.” (At least I did.)
thanks CSE, but is that in conflict with what was said on the assessor’s website, where it said that it can only changes assessment for the further. In other words, any past underassessment has to be forfeited.
“When the city got caught up with the assessment in 18-24 months, do they get to bill for the 24 months that already passed?”
Yup, they can go back up to 5 years but no more. This happened to me and the Assessor said it was due to the statute of limitations on such collections (not for the entire bill, but some supplemental one after we converted to condo). I actually wonder if this ability to collect up to 5 years past tax contributes to the late billing and other recording issues highlighted above, as it doesn’t make much of a difference (well beyond the obvious time value of money) if they get the money today, or 5 years from now.
So, it sounds like that city can’t go back on the assessment, but they can on supplemental.
But catching up 5 yrs at one time must be hard on the payer, I imagine they give 3 months to pay, not 5 years.
Has anyone ever been successful at re-negotiating their property taxes? Is this possible?
I am on the Board of Plan C. The Assessor asked for our input on how to structure separate assessment notices for TIC’s and for our help with introducing the concept to TIC owners. I attended a few meetings with the Assessor and his staff along with a local real estate agent who specializes in TIC’s and an attorney who focuses on TIC’s.
As noted in the posts above, there is no “devious” purpose to offering TIC owners separate assessment notices. The assessor honestly wants to try to provide these notices to thousands of homeowners his office is responsible for serving.
At the meetings we pointed out that the question about improvements on the questionnaire will potentially scare people away from participating. We asked them to omit it so the program has the greatest chance for success. However, it’s true that the Assessor simply wants to try to have a record of the attributes of the TIC units his office is assessing. Right now, they only know how many bedrooms/bathrooms are in the building, not in each unit. There is no other way for them to determine this other than inspecting the properties, which they have no plans to do.
As noted above, the question about improvements to the units is optional. No one should be discouraged from requesting separate assessments — they can simply elect not to provide this information if they’re concerned about it.
Also as noted above, tax bills within TIC’s often create confusion among co-owners. The city is slow to issue supplemental tax bills. Sometimes, a unit within an existing TIC changes hands for a higher price than the original purchase. The new owner enjoys the old assessment and sells his/her unit before the supplemental bill is issued. This leaves the remaining co-owners on the hook for the escaped taxes.
Requests for separate assessments will expedite reassessment of units which have resold within TIC groups. What was surprising to learn from the Assessor is the fact that, under normal procedures, it’s not possible to expedite reassessment even if you are requesting that the assessment is HIGHER. You’re in the same queue as those requesting lower assessments. This is why requests for separate TIC assessments will be helpful to TIC owner groups — they will provide a way to expedite reassessment of units which have sold within existing TIC’s.
I think separate assessments definitely provide an “upside” for TIC owners. Having separate TIC assessments makes TIC units one step closer to condos. Fractional TIC loans have made it possible to have financial independence within a TIC group. Separate TIC assessments are not the same as separate tax bills but they will help TIC owners keep their finances separate. Each This is something Plan C is very pleased with. We want to TIC owners to have the same rights/privileges as condo owners because affordable TIC’s provide one of the few ways for middle income people in the city to become homeowners.
Gordon, those are all fair points. I support Plan C and applaud you for taking the initiative to work with the Assessor on this issue.
I want as many homeowners in the CIty as possible for the same reasons you do, and transforming the TIC to behave more like a condo with tools like fractional loans and individual assessments is a positive thing. And while I don’t mean to imply that the Assessor is being devious, it is simply a fact that in some cases his office has botched assessments to the benefit of owners, especially in the early years of TIC proliferation. I can’t help but think they know this, don’t have the resources to sort it out and see this as a way to get owners to come to them with the right answer so they can increase revenue.
In my opinion, TIC owners should contribute property taxes to the group account based on their purchase price without regard for the assessed value of the building. The formula is purchase price * tax rate / 12 = monthly payment. Each July, increase the purchase price by 2%. There might be some nuances due to flat per-parcel fees, and actual tax rates will have to be estimated between July and October until bills are released, but if owners follow this advice they’ll be close enough to the right answer that no one could ever be “on the hook” for someone else’s taxes.
Fractional loans are great to achieve our shared goals, but in the area of taxes the only good answer is separate tax bills, which means condo conversion reform. In the end, I guess I don’t have a high opinion of government at any level to bring clarity where there is confusion. I’ve never come away from an interaction with a government agency thinking “wow, those people have their s*** together”.
Hi All,
I’m the reader who posed the query.
Based on the above, it seems safe to provide all of the requested information *provided* that one first confirms that one’s building has not been underassessed vis-a-vis the formula suggested by Ted. (Most if not all TIC agreements provide for allocation of taxes in this way.)
Gordon’s post was extremely helpful in explaining the concrete upside of “separate” assessments: quicker re-assessment upon resale, thereby minimizing the risk that someone who buys and sells the same unit within the standard 18-24 month reassessment period will leave the other co-owners “holding the bag” for higher taxes (for the interim period).
By providing the requested information, I also assume that, at the margin, I will be contributing to a “public good”–namely, an informal convention among San Francisco residents and their government to the effect that TICs are not materially different from condos. To the extent that this convention takes hold, the politics of passing an ordinance that loosens restrictions on condo conversion should become more favorable.
Thanks, all!
Regarding Gordon’s comments about out-of-phase TICs and new owners being caught with old catch-ups:
This could easily be a problem with SFR’s as well, if the owner buys/sells in a short time frame, no? Also, in a well-maintained (in my opinion) TIC, the elected or hired accountant should be collecting property taxes monthly on each unit and holding them in an account until the tax collector bills the building. This eliminates the problem mentioned, and also makes it less likely for any single unit to come up short when the bill is finally due (and remember, the entire building is jointly responsible for taxes on the entire building)
In response to the last post — I don’t think the sort of confusion that happens with TIC’s happens with single-family residences. If you buy a home and then sell it before your new tax bill comes out the title report will show what the last assessed value was and the seller will probably be required to catch up on taxes for bills not yet issued. With a TIC, only a portion of the building is changing hands so it gets much more confusing because some people are staying on title and others are leaving.
In response to Ted’s post, my insights come only from the meetings I had with the Assessor and his staff and they honestly didn’t seem to have a hidden agenda to raise assessments on TIC’s that were not assessed properly. Again, if you’re concerned about it just leave the question about improvements to the unit blank.
The ultimate goal would be to issue separate tax bills. The Assessor’s office is responsible for keeping proper records of each TIC unit so it’s possible to assess each unit separately. The Treasurer is responsible for issuing tax bills. The Assessor has begun the process of putting systems in place to make this possible. Once the systems at City Hall can handle it the Treasurer will have the technical ability to issue separate tax bills. However, the Treasurer has expressed concerns about issuing separate tax bills. Namely, if separate bills are issued people will think they are only responsible for the taxes on their unit and not in the building. He’s very concerned about people having this impression. We will try to encourage him to find a way to issue separate tax bills while making certain people still understand their responsibilities within a TIC.
A question related to creating a TIC partnership and the IRS… I was advised to obtain an EIN just for joint TIC accounting purposes (rather than use one of partners’ social security numbers for banking). Does anyone know whether having an EIN could pose a problem re taxes in future?
Thanks.