I am an investor in the NE Ohio area. We are buying a turn-key multi-unit property from someone who flipped it. They are currently paying pre-flip taxes. If we purchase the previous owner's LLC and have title remain in that entity's name as opposed to purchasing it and placing in our LLC , would that avoid a tax hike from the newly re-finished property? Has anyone done this before? Any input would be greatly appreciated.
Not likely. Especially if there is a reval or if permits were pulled (which I hope they were!) then the town knows about the work anyway.
Do Lorain or Cuyahoga Counties re-asses taxes with a transfer?
Updated over 2 years ago
*re-appraise, not re-assess.
Aside from that.....when buying the llc you are assuming the Seller’s cost basis, not what you are paying for the “property”.
@Nicholas Libertin I know someone who successfully purchased a multi-unit's LLC in Cuy county with no change in the taxable value or increase in taxes.
@Nicholas Libertin A local attorney that I know just linked to an article on this very topic. Apparently legislators are work-shopping a bill to close this loophole, but who knows on the timeline.
There are any number of people that have done this successfully in past years. The counties were more lax about transfers and were just happy to have someone keeping buildings maintained. In the past year or three, counties have become more aware of this tactic and are more vigilant. As well, it may not be the county that comes after you but the school board. They monitor transfers and will appeal the taxes if they suspect some thing; it is only paperwork to start the process.
As well there are certain risks / issues you should be aware of;
- As noted above, you have to take on the sellers original purchase cost which limits future depreciation
- If there are / might be any outstanding liens, they will be yours to deal with
- The tri-annual re-appraisal, is being done this year. The taxes are driven by that valuation unless you appeal and win regardless of your or the sellers costs
- If the deal only works with the lower taxes, eventually the taxes will rise and you will be stuck. It MIGHT give you a window, a year or three, with lower taxes to use towards rehab but should NOT be a long term expectation.
Go in eyes open.
Thank you so much for the response. This is extremely informative!
What county are you investing in? If you do run into an issue and wish to appeal it, I know someone who may be able to help you out. Let me know if you want their contact information.