Proposition 19, enacted in the November 2020 Election, eliminates the parent-child exclusion from property tax reassessment for transfers of rental property from parent to child. As a result, real estate investors are looking for new ways to transition real estate to the next generation in a tax-efficient manner. The rules applicable to LLCs under the California Revenue & Taxation Code (R&TC) can provide a great loophole for avoiding higher property taxes.

Real property owned by an LLC is either subject to the Change in Control Rules under R&TC 64(c) or the Change in Ownership Rules under R&TC 64(d). Under those separate rules, real property owned by an LLC is reassessed whenever there is a change in control or a change in ownership. The manner in which an LLC acquires real property determines which set of rules to apply.

Now that Proposition 19 has eliminated the parent-child exclusion for rental properties, real estate investors of all sizes have a great incentive to acquire rental property directly using LLCs so that they can take advantage of the Change in Control Rules loophole.

If you are a California landlord/real estate investor (small or big) that acquired rental property a long time ago, transferring it to an LLC in a transaction excluded from reassessment may prolong reassessment under the Change in Ownership Rules.

And, if you a beneficiary that recently inherited or otherwise acquired real property (investment properties or primary residences) directly in your name, with a spouse, or through your revocable living trust, it might be a good idea to transfer the real estate to an LLC .

Please contact us if you are interested in scheduling to see how we can save you and your family money!