Transferring LLC Interest Trigger Tax Reassessment?

[Jonathan Felts]

I own 50% of an LLC that owns a property. My partners wanted out, so I got a loan to buy their interest (25% & 25%). Part of the deal was to close the LLC after doing so. I have a tax person and a lawyer but both are business oriented and not real-estate. I am wondering what steps, if any, to take to reduce taxes and a reassessment. The order of steps as I see it:

1. pay them out and get 100% of LLC

2. transfer property to either myself as an individual or a new LLC

3. Close old LLC that held property.

I think transfer of ownership and filing of new title triggers reassessment? Or because I owned 50% and now have 100% I am still majority owner. Or if I am 100% single member LLC and then transfer to another LLC or myself as an individual is it an ownership change. Tried reading the CA tax code on form 568 and Revenue and Taxation Code Section 62(a)(2), but its not clear to me.

[Jordan Bailey]

You definitely need to find a CA real estate attorney and one that understands local transfer taxes. There are transfer taxes in CA and they can be triggered by a sale of interests in an LLC that owns property even if the real estate itself is not sold (i.e., no deed is recorded).

The first question I would ask is why do you have to dissolve the LLC if you are buying all of the interests your partner owns?  Maybe you can revisit this deal point with your partner? There may be an exemption from transfer taxes that would allow that transaction without triggering transfer taxes so long as the land stays in the LLC afterwards. It’s also possible the distribution of the land from the LLC back into your name personally would be exempt.

A good title company may also be able to guide you through some of this, but they will not be able to help you rethink how you restructure your deal with your partner if either of those moves trigger transfer taxes.