California law provides a variety of ways to transfer real property with property deeds. Since there are several different types of property deeds in California, it’s important to understand the purpose and effect of each type. Read on to learn more about the various options available and which deed you require. Additionally, learn about documentary taxes and how you may be able to reduce or eliminate the amount you pay.
What is a Deed?
Transferring title to real estate is a straightforward process accomplished with a legal instrument known as a deed. However, you will need to choose a specific type of deed depending on your circumstances. For example, people looking to transfer property may use a grant deed, warranty deed, quitclaim deed, gift deed, or fiduciary deed. Each of these property deeds has its own unique purpose.
Deeds Used For Transfer of Real Property in California
California uses two types of deeds to change ownership of real property: grant deeds and quitclaim deeds. Further names such as warranty deed, interspousal deed, or trust transfer deed are simply special identification given to grant deeds or quitclaim deeds based on specific circumstances. For example, an interspousal deed is a type of grant deed used between spouses in a divorce or to add a spouse’s name after marriage.
Here is a quick clarification of technical issues surrounding the transfer of real property in California, including common names and uses for California deeds:
A grant deed transfers an owner’s interest in the property and shows the percentage of interest transferred. Additionally, a California grant deed assures the buyer/grantee that they are receiving valid title to the property, the title has not been conveyed to someone else, and there are no hidden owners or easements. Finally, owners may use a grant deed when selling property or to transfer real property into a living trust.
- Gift Deed – A gift deed is a special type of grant deed that “gifts” ownership of real property interest to another person or entity. This deed is different from a standard grant deed because it specifically designates that the transfer was not subject to a sale, and the grantor received no monetary compensation. Additionally, the person receiving the gifted ownership of the property must report the gift on their federal income tax return.
- Fiduciary Deed – A fiduciary deed is a special type of grant deed executed by a person who has been appointed or selected as a fiduciary for someone else. An example of a fiduciary would be a trustee, guardian, conservator, or similar person. Fiduciaries are authorized to sign and transfer interest in real property owned by the party who appointed them.
A grantor may use a quitclaim deed for the transfer of real property in California for an unrecorded or recorded interest. Furthermore, the grantor may only have a “potential” interest in the property at hand. In other words, they may or may not be named on an earlier recorded deed. With a quitclaim deed, the grantor transfers property to the grantee without any warranties or guarantees.
People often use quitclaim deeds to release unrecorded interest in real property, clear a cloud affecting title to the property, or release one spouse’s interest in real property to the other spouse. However, people tend not to use quitclaim deeds when transferring ownership with an exchange of money or sale of property.
California’s transfer-on-death deed, or beneficiary deed, allows an owner of real property to execute a deed that names a beneficiary. This beneficiary is granted title to the property when the owner dies. Furthermore, the beneficiary will receive title to the property without going through probate. However, the transfer of ownership doesn’t take place until after the owner’s death.
The use of a transfer-on-death deed is limited and is not available for all types of property. It is revocable and an owner can execute and record several transfer-on-death deeds during their ownership of real property. The last recorded deed will be the one in effect.
After Deeds: The New Title
After selecting the appropriate property deed, the grantor must make a decision about the form of title the new property owners will hold. The most common ways to hold title to real property include as a sole owner, tenants-in-common with other owners, a trustee of a trust, joint tenants, community property, or community property with the right of survivorship.
What is Documentary Transfer Tax?
Upon transfer of real property in California, the government imposes a documentary transfer tax on each recorded document in which real property is sold. Documentary transfer tax is like a “sales tax” due at time of transfer of real property in California. However, it should not be confused with annual real property taxes.
The amount of documentary transfer tax varies greatly based on the property’s location and the value of the interest of real property conveyed. Additionally, the seller or buyer must pay the documentary transfer tax at the time of recording a document transferring real property. However, sellers and buyers do not typically have to pay this tax for properly prepared gift or quitclaim deeds.
Calculations of California Real Property Transfer Tax
Calculating real property transfer tax is straightforward. Currently, most counties charge $1.10 per $1000 value of transferred real property in California. For example, on real property valued at $20,000, the county documentary tax would be $22.00. However, each city assesses additional taxes on real property transfers. Furthermore, the amount of additional tax will depend on the city or unincorporated area where the property is located.
Looking for more specific information? Use our convenient transfer tax calculator to help approximate the transfer tax based on the sales price and location of your real property in California.
California Real Property Transfer Tax Exemptions
Upon transfer of real property in California, several types of real estate transactions are exempt from documentary transfer tax. These exemptions are identified in the State Revenue and Taxation Code Section 11902-11930. Some of the more common exemptions to the transfer tax are:
- Instruments to secure debts
- Transfer of property to government entities
- Transfers incidental to reorganization or adjustments
- Transfers of interests in a continuing partnership or similarly treated entity
- Changes in the method of holding title without a change in proportional ownership
- Transfer incident to foreclosure sale or deed in lieu
- Transfer incident to dissolution of marriage or similar order
- Transfers by gift or death
- Transfers into or out of a trust
Be sure to keep these exemptions in mind when structuring transactions to help reduce the transfer tax charged. Also, remember to include a statement explaining the reason for the property tax exemption on the deed at the time of recording. Finally, note you must properly prepare the deed to avoid paying unnecessary real property transfer tax.
A People’s Choice Can Help With the Transfer of Real Property in California
An improperly prepared deed could have severe consequences down the road. However, many title companies no longer help people prepare real property deeds and, as a result, often refer people to our office for low-cost help! Therefore, if you need to record the transfer of real property in California, contact A People’s Choice for more information.
A People’s Choice can help you prepare the necessary real property deeds along with the required preliminary change of ownership forms. Plus, we can facilitate recording the new deed with the correct county recorder’s office for a much lower fee than hiring an attorney.