I may have poorly expressed my thoughts, but that actually does answer my questions perfectly and confirms my understanding! The numbers make sense / are based off the increased taxes, but I won't complain if I don't have to pay higher taxes despite depreciating the actual value haha!
Much appreciate the warning regarding the liability issues with buying the entity, Im aware of the potential problems a purchase of the entity vs the asset can create, we will have that covered my an attorney (if I don't just buy the asset.
Thanks you so much again for chiming in!
Originally posted by
@Greg Scott:
I think you've confused a couple of concepts here which all address first. From your parenthetical comment, it seems you are guessing you may have confused them.
- Your tax assessment has nothing to do with how much depreciation you can take. Depreciation is based on the purchase price, minus land.
- So, if your tax assessment goes up, the only thing that happens is you pay more tax. There is no "added benefit" for you.
Regarding the tax assessment, I cannot speak to California, but Michigan has a similar tax structure. The state here quickly got wise to property purchase vs entity purchase and have been aggressively going after people trying to hide the transaction with an entity purchase. You would be wise to expect that CA would do the same and your property taxes would triple. If the deal doesn't make sense with 3x taxes, I wouldn't buy it.
Finally, it is worth talking to your attorney. The downside of buying an entity is that you get to keep any liability they have created. So, for example, if they are violating fair housing today, the entity you buy from them could get sued and you could lose the property. Your attorney may also find their operating agreement was poorly created, or the LLC was poorly maintained, which might cause you to lose any and all liability protection.