Hello everyone!
I'm looking for advice on the tax implications that come with transferring title from an individual into a LLC with 3 members.
A couple days ago I purchased a multifamily up in northern California and took title of the property. I own 51% of an LLC with 2 other family members, each of them with 24.5% ownership. Initially I thought it should be fairly simple to transfer title but after talking to a couple title company people they told me that the county might charge me with a transfer tax because there are multiple people in the LLC thus making it a "sell".
I've only heard that there is a chance of the property being reassessed ... so is there gonna be some sort of transfer tax as well? And are there gonna be any other tax implications that would arise when we do the transfer?
Thanks in advance for any information or advice!
There are several possible issues with what you're trying to do. Do you intend to give these other investors 49% ownership in the property you just purchased? Did they help you to purchase it and for some reason only took title in your name? Once you put the property into the LLC, it will be owned by the LLC, in the percentage ownership that each holds in the LLC (51/24.5/24.5). Therefore, if you purchased the property alone, and you put it into the LLC, either they purchased 49% from you, or you gifted 49% to them. If you truly purchased the property alone and want to put it in an LLC, why not form your own single member LLC? That LLC could even be 51% member in your existing multi-member LLC if you wanted (and if the operating agreement allows the transfer). A gift and a sale have 2 very different points for analysis and different consequences.
In California, property is reassessed whenever there is a "change in ownership." If you just purchased the property a few days ago, it would be reassessed to fair market value upon your purchase because ownership changed (from the seller to you). Therefore, if transferring into the LLC triggers a reassessment, it should not have much, if any, monetary effect because the fair market value a few days ago and the fair market value today are going to be the same (or maybe a slight change but unlikely). When you put property into an entity, there is an exception from reassessment so long as there is no change in beneficial ownership. That means the ownership before needs to be the same beneficial ownership as after the transfer to the entity. You are 100% owner before, going to a 51% owner after the transfer, so it is likely that the transfer to the LLC would cause reassessment. There are a whole bunch other rules as well regarding property taxes and changes in ownership within entities that can be rather complex that you probably want to consult with a professional before making transfers if you are worried about reassessment.
I'm unclear about the details surrounding the transaction but sounds like you may want to form your own LLC or talk to a professional about what options are available to you.
*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.
There are several possible issues with what you're trying to do. Do you intend to give these other investors 49% ownership in the property you just purchased? Did they help you to purchase it and for some reason only took title in your name? Once you put the property into the LLC, it will be owned by the LLC, in the percentage ownership that each holds in the LLC (51/24.5/24.5). Therefore, if you purchased the property alone, and you put it into the LLC, either they purchased 49% from you, or you gifted 49% to them. If you truly purchased the property alone and want to put it in an LLC, why not form your own single member LLC? That LLC could even be 51% member in your existing multi-member LLC if you wanted (and if the operating agreement allows the transfer). A gift and a sale have 2 very different points for analysis and different consequences.
In California, property is reassessed whenever there is a "change in ownership." If you just purchased the property a few days ago, it would be reassessed to fair market value upon your purchase because ownership changed (from the seller to you). Therefore, if transferring into the LLC triggers a reassessment, it should not have much, if any, monetary effect because the fair market value a few days ago and the fair market value today are going to be the same (or maybe a slight change but unlikely). When you put property into an entity, there is an exception from reassessment so long as there is no change in beneficial ownership. That means the ownership before needs to be the same beneficial ownership as after the transfer to the entity. You are 100% owner before, going to a 51% owner after the transfer, so it is likely that the transfer to the LLC would cause reassessment. There are a whole bunch other rules as well regarding property taxes and changes in ownership within entities that can be rather complex that you probably want to consult with a professional before making transfers if you are worried about reassessment.
I'm unclear about the details surrounding the transaction but sounds like you may want to form your own LLC or talk to a professional about what options are available to you.
*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.
Got it, thank you!!