Keep Your Low California Property Taxes When Transferring Real Estate to an LLC

You protect your wealth by keeping your property taxes low after moving assets into LLCs. Knowing the rules prevents unexpected tax hikes and saves you thousands in annual costs. Follow these steps to navigate transfers while maintaining your Prop 13 assessment.

How California Property Tax Reassessment Works

Revenue and Taxation Code §60 states that a "change of ownership" triggers a property reassessment. If you bought a property in 1995 for $800,000, it might be worth $4,500,000 today. Reassessment increases your annual tax bill by $45,000–$55,000 based on your specific county.

The >50% Change-in-Ownership Rule for LLCs

A change of ownership occurs when you transfer more than 50% of entity interests. This rule applies cumulatively across multiple transactions under the "original co-owner rule."

Key Rules for LLCs:

  • Transferring 50% or less interest does not trigger a reassessment.
  • Transferring more than 50% triggers reassessment only on the percentage interest transferred.
  • The "original co-owner" exception may apply if the LLC members match prior property owners.

Prop 19 and the Parent-Child Exclusion

Prop 19 took effect in February 2021 and changed how families pass down real estate.

  • The exclusion only applies to a primary residence used as the child's own home.
  • Investment properties and vacation homes face full reassessment upon inheritance.

Plan for a future reassessment event if your family holds investment real estate in LLCs.

Safe Harbor Strategies

Strategy 1: "Legal Entity" Exception

Transfers within an entity may not trigger reassessment if the original ownership remains unchanged.

Strategy 2: Proportionate Interests

Keep ownership proportions identical across related entities to stay under the 50% threshold.

Strategy 3: R&TC §62(a)(2) — Estate Planning Transfers

Transfers between you and an entity do not trigger reassessment if your proportionate interest remains identical.

Thinking about restructuring your California real estate? Call us first. 323-463-2600