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All Forum Posts by: Katie Balatbat

Katie Balatbat has started 0 posts and replied 271 times.

Post: California Prop.19, property taxes and rental properties

Katie BalatbatPosted
  • CPA and Attorney
  • San Diego, attorney
  • Posts 273
  • Votes 197
Quote from @Eric Gerakos:

Hey Becca. Prop 19 does cause inherited property to be reassessed at current market value. Properties held in an LLC avoid reassessment. Of course in California an LLC costs $800 a year to maintain.


I don't believe it is true as a blanket statement that properties within an LLC avoid reassessment. It's possible, but depends on the circumstances. In general, if someone dies owning 100% of an LLC, it is certainly possible that the properties in that LLC will be reassessed upon their death.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

Post: California Prop.19, property taxes and rental properties

Katie BalatbatPosted
  • CPA and Attorney
  • San Diego, attorney
  • Posts 273
  • Votes 197

@Becca F.

Just chiming in with a couple of thoughts.  Prop 19 did drastically change the property tax landscape for transfers of real property between parents and children after 2/15/2021.

If considering adding a child to title now, you are correct that there are other considerations.  For one, depending on how it is done, it could be a change in ownership that causes a reassessment for property taxes now upon adding child to title.  There are also gift tax considerations, estate tax considerations, and income tax considerations.

Some irrevocable trusts, depending on the type of trust and how it is structured, may avoid reassessment upon transfer of property into the trust, but likely not avoiding reassessment entirely or forever unless properly qualifying for some exclusion.

There may be some strategies to be used with LLCs or business entities to help avoid, or at least drastically reduce, property tax reassessments, but such strategies require time, attention to detail, and can be inherently a little riskier.  Any strategies making use of LLCs should be done in strict consultation with a competent advisor.

Be sure to make all of these considerations in conjunction with an estate planning attorney to ensure that all plans meet with the overall plan of wealth and asset transfers.

As to the $1 million exclusion, I think your calculation is slightly incorrect in how it is structured, but does appear to probably arrive at the correct conclusion.  I think generally only $1 million above the assessed value can be excluded, and anything above that is added to the base assessed value.  So the calculation would probably actually be something more like base assessed value $275k plus $1 million extra = $1,275,000 max value that can be carried from parent to child avoiding reassessment, and anything above that ($1,400,000 - 1,275,000) is added to the base $275k that gets ported over.  Either way I think you arrive at the same $400k assessed value in your example, but I believe the formula is slightly different.  Note that the $1 million value is adjusted for inflation and was recently increased a little higher.

If the child does move into the parent's primary residence as his/her own residence, be careful to meet all the rules to properly qualify for the exclusion including the time for doing so, filing the correct application forms timely, meeting requirements for primary residence, no buyouts among siblings, considering the homeowner's exemption on other real properties owned by the child, how long the child needs to reside there as a primary residence, etc.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

Post: Tax Planning and to create an LLC or not?

Katie BalatbatPosted
  • CPA and Attorney
  • San Diego, attorney
  • Posts 273
  • Votes 197

@Daniela Damjanoski

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

Any lawsuits should be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.

If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs. You'll also want to coordinate with your estate plan, and consider getting an estate plan if you do not yet have one in place.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Post: What state is the best to open an LLC for real estate investment

Katie BalatbatPosted
  • CPA and Attorney
  • San Diego, attorney
  • Posts 273
  • Votes 197

@Roland VanLoan

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

Be sure to tell your accountant that you may now need to file non-resident income tax returns in each state where you own property as well. CA taxes residents on worldwide income but may provide a credit for taxes paid to other states.

Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction. Of course, with all things, the answers to all these matters will depend on the circumstances.

California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner and/or spouse live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. It may also make it easier for your estate planning attorney to line up ownership with your estate plan, assuming a CA-estate plan if a CA resident. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

*This post is informational only and 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.

Post: How will marriage affect my rentals

Katie BalatbatPosted
  • CPA and Attorney
  • San Diego, attorney
  • Posts 273
  • Votes 197

@Robert D.

Sounds like you need to speak with a family law attorney about separate versus community property rules, as well as possible creation of a pre-nuptial or post-nuptial type agreement.  Having the knowledge of what transmutes separate property to community property may be a very important lesson for you, as well as what liability protection can be afforded by retaining assets as separate property, if any.

As to the LLC, there are a variety of opinions, but you are correct that generally any LLC "doing business" in California should register with the California Secretary of State and pay the minimum $800 annual fee. Formation of a CA LLC and ongoing maintenance is generally fairly inexpensive.

If you need referrals for attorneys in San Diego, feel free to reach out.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

Post: Seeking Advice on Property Ownership and Cost-Effective Transfer

Katie BalatbatPosted
  • CPA and Attorney
  • San Diego, attorney
  • Posts 273
  • Votes 197

@Sean Overcrest

The transaction that you've proposed has several different tax implications: income tax, gift tax, estate tax, and yes, property tax.  Seems that you are most focused on property taxes at the moment, but all of them really need to be evaluated for a complete picture.  There may be a way to reduce property tax reassessment by using LLCs, but it is a complicated plan, takes time to complete, generally needs a business purpose, and is not without risk.  If you need recommendations for attorneys in San Diego, let me know.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

Post: Section 121 and gift tax

Katie BalatbatPosted
  • CPA and Attorney
  • San Diego, attorney
  • Posts 273
  • Votes 197

@Roger Kim

Be careful about gifting twice as well - if you own 50% of the home and give him the full 100% of the proceeds, perhaps it could be considered as a gift from you to him of your 50% of the equity (likely recorded by formal deed prior to the sale).  After it closes, if he then gifts you back the profits, now that could be a second gift from him to you.  You are generally correct that there is an annual exclusion for gift taxes that generally passes tax-free (of course, in all situations, exceptions apply and you have to meet all requirements to qualify).  If you gift over the annual exclusion amount, you may not need to necessarily *pay* gift tax, but that does not mean that it is not a taxable gift or have tax consequences.  Also, gifting real property generally would require an appraisal as well, which could increase costs, too.  As others have pointed out, be careful in schemes that appear purely to avoid tax.  If you need recommendations for estate planning attorneys or CPAs in San Diego, let me know.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional assistance.

Post: Pay more to close the loan under LLC or Change the title after the loan closes?

Katie BalatbatPosted
  • CPA and Attorney
  • San Diego, attorney
  • Posts 273
  • Votes 197

@Jorge Liang

The process to actually record a deed into the LLC after closing is generally fairly straightforward, but if you need to get an attorney involved, it may eat up those savings. You'll also want to confirm that the transfer is being done in a manner that does not adversely affect you for property taxes. Additionally, most mortgages have due-on-transfer clauses that could be triggered if you transfer ownership after closing. You may want to investigate these matters closely.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

Post: Deed transfer and tax implications

Katie BalatbatPosted
  • CPA and Attorney
  • San Diego, attorney
  • Posts 273
  • Votes 197

@Marko Bukva

I'm not entirely clear on the plan and ownership, but there are potentially several different types of tax at play for a transaction like you're discussing - gift taxes, estate tax, income tax, property tax, documentary transfer tax, etc.  You will probably want to pay attention to the income tax basis to any proposed transactions as well as be wary of any transfers that cause a property tax reassessment, depending on whether that amounts to a big increase in taxes or not.

Feel free to reach out if you would like referrals in San Diego County in order to work remotely.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

Post: LLC Insurance and Taxation

Katie BalatbatPosted
  • CPA and Attorney
  • San Diego, attorney
  • Posts 273
  • Votes 197

@Marc Zak

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.

California is generally more cumbersome than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will likely need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.

Any lawsuits should be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.

If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs. You'll also want to coordinate with your estate plan, and consider getting an estate plan if you do not yet have one in place.

As to the trust, that's generally an estate planning tactic rather than asset protection.  California's probate rules can be drastic in the event of death that having a proper estate plan in place can help in any number of situations, including if just traveling or incapacitated.

These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.