Restructuring California Real Estate Without Triggering Reassessment

Income tax isn’t the only tax a restructure can trigger. In California, changing who owns a property, or who controls the entity that owns it, can reset the property’s assessed value to market. On a property held for years, that can mean a property tax bill several times what the owner pays today.

How Proposition 13 works

Under Proposition 13, a property’s assessed value is set when it’s acquired and can rise by no more than 2% a year after that. The assessed value generally resets to current market value when there’s a change in ownership, unless an exclusion applies. New construction can also be reassessed. For long-held property, the gap between the assessed value and market value is often the most valuable tax attribute the owner has.

When an entity owns the property

Transferring interests in an LLC or partnership that owns real estate generally isn’t a change in ownership of the property itself. There are two major exceptions:

Change in control. When any one person or entity obtains control, meaning more than 50% of a corporation’s voting stock or of a partnership’s or LLC’s capital and profits interests, directly or indirectly, the real estate that entity owns is generally reassessed.

Cumulative transfers by original co-owners. When property was moved into an entity without reassessment because ownership percentages stayed the same, the people who owned it at that time become “original co-owners.” If their interests transferred over time add up to more than 50%, the property can be reassessed, even if no single buyer ever gained control.

Moving property into or out of an entity

Transferring property into or out of an entity is generally a change in ownership. An exclusion applies when the transfer only changes how title is held and each owner’s proportional interest stays exactly the same before and after. That exclusion is useful, but a transfer into an entity under it starts the original co-owner clock described above, which owners rarely track.

Long leases

A lease with a term of 35 years or more, counting renewal options, is generally treated as a change in ownership of the leased property. Ground leases and long-term leasebacks can trigger reassessment even though title never changes.

Filing requirements

When an entity has a change in control or a cumulative change in ownership, it generally must file a statement with the State Board of Equalization (Form BOE-100-B) within 90 days. Missing the filing can bring a 10% penalty on top of the reassessment itself.

Transfer taxes

Counties and many cities impose a documentary transfer tax on sales under local ordinances, and some cities charge far higher rates on high-value transactions. In some jurisdictions, transfer tax can also apply when control of an entity that owns real estate changes hands.

Family transfers

Since Proposition 19 took effect in 2021, the exclusion for transfers between parents and children is much narrower than it used to be, especially for property that isn’t the family home. Estate and succession plans written before 2021 are worth a second look.

Before you restructure

• Map who owns what today, directly and through entities

• Check whether any earlier transfer created original co-owners

• Model whether the planned change crosses a 50% threshold

• Confirm filing obligations and transfer tax before closing

• Coordinate the income tax and property tax answers, since the best structure for one isn’t always best for the other