A California investor group acquires a $5,000,000 commercial building through a multi-member LLC. To avoid triggering Proposition 13 reassessment, the members plan to transfer ownership interests to a new investor gradually — selling small increments over several years so that no single transfer exceeds 10% of the LLC. Under California law, when does a reassessment-triggering change of ownership occur in this scenario?
Correct Answer
B) When cumulative transfers of membership interests to new owners exceed 50%, regardless of how the transfers are structured or timed
California Revenue and Taxation Code §64(c) and §64(d) establish that a change in ownership of real property held by a legal entity occurs when there is either a change in control (one person or entity acquires more than 50% of the ownership interests) or a cumulative change of more than 50% of the ownership interests. Critically, the State Board of Equalization tracks cumulative transfers over time — not just individual transactions. Incremental transfers that each stay below 50% do not reset the cumulative tally. Once the aggregate of all transfers to new owners crosses the 50% threshold, reassessment is triggered on the entire property. This anti-avoidance rule is specifically designed to prevent the type of structured incremental transfer described in this question.
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Related Concepts
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