Proposition 13: Change in Ownership
Many “do-it-yourself” (DIY) websites have advertised how low their fees are to start an LLC. BEWARE: the use of an experienced attorney in this area may save you thousands of dollars in the long run.
Proposition 13 passed in 1978 and basically states so long as there is not a “change in ownership,” the property tax base on residential and commercial property will not increase beyond 2% per year (known as the Factored Base Year Value).
Many people start an LLC to own commercial or rental residential property – this can be a good decision. However, in order for the LLC to properly own the property, a transfer must be made of the property from the individual to the LLC. Unless counsel knowledgeable in the aspects of Proposition 13, its regulations and rulings prepares the deed transfers and accompanying documentation, this transfer can result in a complete reassessment of the property by the Assessors office. For example, an individual has owned a residential rental property for 10 years. The taxable value of the property may be $300,000 (the Factored Base Year Value). The fair market value of the property may be $600,000. The assessors office will determine the amount of real property tax based upon $300,000 and not $600,000. If the transaction was structured properly, the taxable value of the property would remain $300,000 and there would not be an increase in the property tax. If the transaction was not structured properly, the assessor’s office will reassess the property to $600,000, resulting in a doubling of the annual property tax bill!
An experienced attorney with knowledge in this field can help the owner of the property to transfer the real estate into the LLC without triggering a reassessment. Our firm has very reasonable fees for forming and funding the LLC. Please call us if you would like help with a transfer into an LLC or have received a Notice of Reassessment in which you need help.
