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  1. #1
    Join Date
    Mar 2013
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    1,279

    Default Selling Property Owned by an LLC, Resulting Property Tax Issues

    My question involves real estate located in the State of: California

    My turn to ask a question instead of answering one.

    California has a unique property tax system. Generally speaking, you are taxed at 1% per year of what you paid for the property. That tax can only be increased each year by 1% of the 1%. There are some exceptions, by they are irrelevant for the purposes of this discussion.

    When you sell real property and ownership changes hands (new name on the deed), the property is reassessed and taxed each year at 1% of the new sale price, with the previously discussed 1% of 1% yearly increases to follow.

    I own a couple of pieces of rental property. One is worth eight times what I paid for it 25 years ago and the other has doubled in price since I bought it two years ago. Needless to say, were I to sell these properties, the new owners would incur sizeable hikes in the property taxes over what I have been paying. This could affect my selling price.

    Each rental property is owned by a separate LLC. Instead of selling the property, can I simply sell the LLC to a prospective buyer and in doing so, avoid any reassessment of the property values and resulting tax increase based on ownership changing hands? In this case, ownership of the real property (the LLC's name on the deed) would not change. Instead, only ownership of the LLC would change.

    Your thoughts?

  2. #2
    Join Date
    Mar 2013
    Posts
    18,340

    Default Re: Selling Proprety Owned by an LLC - Resulting Property Tax Issues

    Quote Quoting L-1
    View Post

    Each rental property is owned by a separate LLC. Instead of selling the property, can I simply sell the LLC to a prospective buyer and in doing so, avoid any reassessment of the property values and resulting tax increase based on ownership changing hands? In this case, ownership of the real property (the LLC's name on the deed) would not change. Instead, only ownership of the LLC would change.

    Your thoughts?
    I think that California is wise to that dodge.

    According to the Board of Equalization:

    Legal Entity Ownership Program
    This program is a cooperative effort between the BOE and the Franchise Tax Board to discover both changes in owner ship and control of legal entities. When the BOE determines that an entity that owns real property in California has undergone a change in control or ownership, the BOE informs the appropriate assessors of the need to reappraise real property owned by those entities.


    See top of page 4 at:

    http://www.boe.ca.gov/proptaxes/pdf/pub29.pdf

  3. #3
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    2,344

    Default Re: Selling Proprety Owned by an LLC - Resulting Property Tax Issues

    The bureaucrats are slow and lumbering, but they are not stupid

  4. #4
    Join Date
    Mar 2013
    Posts
    1,279

    Default Re: Selling Proprety Owned by an LLC - Resulting Property Tax Issues

    Thanks Adjusterjack. BOE never entered my mind. I only think of them as being involved in collecting sales tax.

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