Legal Question in Real Estate Law in California

Re: Real Estate/LLC/Tax

I would have to refer you to tax counsel for advice regarding how best to structure your purchase and to take advantage of Proposition 13. I wanted to clarify, however, one misperception in your post. The LLC ownership does not protect you from future property tax increases. Change of ownership (partial or full) in the LLC does trigger a reassessment of the part (proportional to the change of ownership of the LLC) or all of the property for property taxe purposes. The tax assessor may not find out about the change of ownership immediately, but when they do they are allowed to go back four years and reassess the property and collect unpaid taxes plus penalties and interest. The misperception is that simply because the LLC doesn't transfer the property, there is no reassessment - that is incorrect.

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Re: Real Estate/LLC/Tax

Owning investment property in an LLC is often done for liability protection purposes, although at a cost....the franchise tax is $800 a year minimum, plus an increment based on gross revenues over a certain minimum. You need to take a look at whether you could purchase insurance providing equivalent protection for less than the cost to set up and maintain the LLC including franchise tax and what it'll cost to pay an accountant to prepare and file various reports and tax returns.

If the property is in California, I would recommend a Calif. LLC since an out-of-state LLC would be deemed doing business here based on rental and leasing operations and would have to register and pay franchise taxes here anyway.

Holding real property in an entity does not protect against property tax increases. The legislature thought of this a long time ago and plugged the loophole. If the LLC is sold, or control over it changes, the property will be reassessed. All LLCs get sent questionnaires from time to time about this, and they have to be answered under penalty of perjury.