I own 48% of an apartment building (located in California) with my parents, who own the other 52%. They want to transfer another 35% of ownership to me. This 35% is about $1.5M in equity. I am wondering whether they can make this transfer without triggering a property tax re-assesment, so that we can keep the property taxes at the same rate using CA prop 58. Based on my research, each parent can give up to $1M without the building being reassessed. I also learned that it may be good to first put the building ownership in an LLC, for protection from potential lawsuits, and also to make the transfer of ownership easier.
I look forward to any advice on how to make this transaction as smooth and tax-free as possible...
Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
7y
@Daniel A.
I don’t know that answer (re: CA assessment) of the top of my head although I know I can find the answer with some research. But I will leave that research to your cpa/attorney.
What I will say is your parents will have a gift tax return filing requirement. They may not owe any actual gift tax, but the transfer of the 52% ownership interest in the real estate with a value like you say will necessitate the requirement of IRS Form 709, gift tax return. Consult with your CPA...
Agreed that you will have to look out for gift tax consequences here if your parents gift the property to you. While an LLC may be beneficial for other reasons, the California parent-child exclusion is not eligible for property given through an entity. They can transfer the property to you and then you create an entity if you want to use the parent-child exclusion. There are also exclusions available for entities but you are asking specifically about parent-child. You'll also want to be sure your parents haven't used up any of their exclusion already or have other properties that may benefit more from using the exclusion. You will likely want to seek out an attorney to help with this one, especially if the dollars at stake are pretty large. The San Diego County Assessor is usually fairly helpful as well and they have a parent-child division but they will not give you legal advice.
*This post is not to be relied upon. Readers are advised to seek professional advice. This post does not create an attorney-client or CPA-client relationship.