One of the ways an LLC can avoid property tax reassessment in California is through careful planning and utilizing specific provisions available to business entities.
What is Proposition 13 and how does it affect property tax reassessment?
Proposition 13 is a landmark California law passed in 1978 that limits property tax increases. It mandates that property tax assessments cannot increase by more than 2% per year unless there is a change in ownership or new construction. This means that if an LLC can avoid triggering a change in ownership, it can potentially maintain its current property tax assessment.
What is a change in ownership for purposes of property tax reassessment?
In California, a change in ownership can occur in several ways, including:
- Transferring more than 50% of the ownership interests in the LLC
- Transferring a controlling interest in the entity
- Transferring the majority of the assets of the entity
Can an LLC use a business entity change exclusion to avoid reassessment?
Yes, California law provides for a business entity change exclusion that allows certain transfers of ownership interests to be exempt from reassessment. This exclusion may apply if there is a transfer of ownership interests in the LLC but no change in control or ownership percentage among the existing owners.
How can an LLC structure its ownership to avoid reassessment?
One strategy is to carefully plan ownership transfers to avoid triggering reassessment. This may involve spreading ownership interests among multiple members or limiting the transfer of ownership interests to less than 50% of the total interests in the LLC.
What role does the Franchise Tax Board play in property tax reassessment?
The California Franchise Tax Board (FTB) enforces tax laws related to property reassessment. If there is a change in ownership that triggers reassessment, the FTB may become involved in ensuring that the property is properly reassessed at its current market value.
Are there any exemptions available to LLCs to avoid reassessment?
Some LLCs may qualify for specific exemptions from reassessment, such as the parent-child transfer exclusion or the grandparent-grandchild exclusion. These exclusions allow for property transfers between family members without triggering reassessment.
What are the potential consequences of property tax reassessment for an LLC?
If an LLC undergoes reassessment and its property tax assessment increases significantly, it can result in higher tax obligations for the entity. This can impact the LLC’s financial health and potentially affect its ability to generate profits.
In conclusion, avoiding property tax reassessment in California requires careful planning and understanding of the state’s tax laws. By utilizing available exclusions and structuring ownership transfers strategically, an LLC can potentially maintain its current property tax assessment and avoid unexpected tax increases.