Prop 13 and transfer taxes when you buy a company instead of a deed.

By Shawn Lavi, CPA

In Part 1 I said skipping the deed doesn't skip Prop 13. This part shows where the lines are, using the same made-up deal from Part 2.

Two buyers each buy 50% of an LLC from its old owners. The LLC bought its one commercial building years ago for $1.6 million. It's worth $3 million today and owes $1.8 million on its loan. All made-up numbers.

The two lines California watches

Normally, buying into an LLC doesn't count as buying its building. There are two exceptions.

Someone gets control. One person or company ends up with more than half of the LLC. For an LLC, that means more than half of the capital and more than half of the profits. It counts even if you get there in small steps. When it happens, the whole building gets reassessed, not just the slice you bought.

The original owners sell more than half. Say the old owners held the building in their own names, then deeded it into their LLC in the same proportions. That usually isn't a reassessment, but it makes them "original co-owners." Once more than half of their interests have changed hands, added up over the years, the building they put in gets reassessed. That can happen even when no single buyer gets control.

Run our deal through it

Each buyer ends up with exactly 50%. Neither has more than half, so nobody gets control. And the LLC bought the building itself, so there are no original co-owners to count.

On those facts, there's no reassessment. The state's own rules have a near-identical example: a married couple buys 100% of an LLC, each is treated as getting 50%, and nothing gets reassessed.

That's how the real deal behind this series went. It was an even split and the LLC had bought the building itself, so neither line was crossed and no BOE-100-B was needed.

Small changes flip the answer:

  • Split it 60/40 instead, and the 60% buyer has control. The whole building gets reassessed.
  • If the old owners had deeded the building in from their own names, selling 100% to anyone crosses the original co-owner line, even at 50/50.
  • Buy 50% now and a little more later, and the second purchase can be the one that gives you control.

What a reassessment costs

The building's taxable value resets to its current value as of the closing date. After that, it can rise at most 2% a year. You also get one or two supplemental bills to catch up the year you close.

Made-up math: the county has the building at $1.9 million today, and it resets to $3 million. At a made-up 1.2% all-in rate, the yearly bill goes from $22,800 to $36,000. That's $13,200 more every year. Check the real rate on your bill.

More in our Prop 13 LLC article.

The 90-day form

When a buyer gets control, or the original co-owner line is crossed, someone has to file Form BOE-100-B with the state Board of Equalization within 90 days. On control, the buyer who got control files. On the original co-owner test, the LLC files.

Details that trip people up:

  • It goes to the state board, not the county assessor. Filing with the county doesn't count.
  • There are no extensions.
  • You file even if you think an exclusion applies.
  • If the board sends you the form, you have 90 days to file it, even if nothing changed. A "yes" to the ownership question on the LLC's California return is one way that letter gets triggered.

Miss it and the penalty is 10% of the property tax on the new value. In our made-up 60/40 version, that's $3,600, added to the tax bill. You can ask the county to waive it for reasonable cause, within 60 days of the notice.

Transfer tax with no deed

Transfer tax is normally paid when a deed records. The California Supreme Court ruled in 2017 that the tax can still apply when an LLC sale causes a change in ownership under the same Prop 13 lines.

LA County says it collects transfer tax on entity deals that hand over more than half the control, using information from the Assessor. The tax is due as of the date of the change.

There's an exemption for LLCs taxed as partnerships. State law skips the tax when the partnership keeps going for federal tax purposes and still holds the building. The City of Los Angeles has the same rule. Since 2018, a partnership generally keeps going as long as it's still in business as a partnership. One clear way it ends is one buyer owning the whole LLC. Then it's treated as if the LLC deeded the building away at its value minus the loan.

How that exemption fits the county's billing is a question for your attorney before you sign. Our 50/50 deal doesn't cross the county's line anyway.

The rates, if it applies:

  • LA County: $1.10 per $1,000, figured on value minus the loan.
  • City of Los Angeles: another $4.50 per $1,000 on the same base.
  • Measure ULA, inside the City of LA: for deals closing after June 30, 2026, 4% above $5.4 million and 5.5% at $10.9 million or more. ULA counts the full value, loan included.

The city says both its base tax and ULA apply to entity deals that change ownership. Our $3 million building is under the ULA line. A $6 million building with a $5 million loan is over it. More in our Measure ULA article.

Put it in the contract

  • Ask how the LLC got the building. Get the deed into the LLC and any past BOE-100-B filings.
  • Get a list of every ownership change since then, to count toward the 50% line.
  • Map who owns what after closing, capital and profits both.
  • If you'll cross a line, budget property tax at the new value and decide who pays the supplemental bill.
  • Decide who files the BOE-100-B, who signs it, and put the 90-day date on the closing checklist.
  • Decide who pays any transfer tax, and who covers a bill that shows up later.

Coming next

  • Part 4: Closing the books: prorations, seller promises, and who files the last return.
  • Part 5: Selling your LLC interest later: depreciation recapture, and why it can't go into a 1031 exchange.

Buying an LLC in California? Count to 50% before you sign, and calendar the 90 days the day you close.

Shawn Lavi, CPA · LaviCPA · lavicpa.com. General information, not tax or legal advice. The example uses made-up numbers. Every deal is different. Talk to your own CPA and attorney before you act.

Sources. Control and original co-owners: Cal. Rev. & Tax. Code §64(a), (c), (d), §62(a)(2). Married-couple 50/50 example: Cal. Code Regs. tit. 18, §462.180(d), Example 7. Reassessment and 2% cap: Cal. Const. art. XIII A, §2(a)-(b), Rev. & Tax. Code §75.10, §75.11. BOE-100-B, 90 days, penalty, abatement: Rev. & Tax. Code §64(e), §480.1, §480.2, §482(b), §483(c), and the BOE's LEOP filing page. Transfer tax: Rev. & Tax. Code §11911, §11925, 926 North Ardmore Avenue, LLC v. County of Los Angeles (2017) 3 Cal.5th 319, LA County Registrar-Recorder legal entity transfer tax page, L.A. Mun. Code §21.9.2 and §21.9.8, 26 U.S.C. §708(b)(1), Rev. Rul. 99-6. ULA thresholds and entity transfers: City of LA Office of Finance ULA FAQ, Office of Finance report to City Council, Aug. 8, 2024 (CF 23-0829).