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I am planning to buy a real estate property (rental) as a investment. There was a listing with the following comment:

Property was purchased 17 years ago on a stock purchase - suggest Buyer do the same to avoid a tax increase.

When I asked the selling agent to clarify the comment, I got this response:

You purchase the stock of LLC rather that being a real estate sale. That way, in the auditor's page, they have no idea on sales price and then, no real estate tax increases. It is an 'arms length transaction'.

What does this mean? How would that look like in practice?

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    This sounds like either a scam or tax evasion - are they trying to get you to buy the LLC that owns the property rather than the property itself?
    – D Stanley
    Sep 1 at 18:37
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    What US State is that? I'm not familiar with any State where you can change beneficiary ownership without triggering reassessment
    – littleadv
    Sep 2 at 0:21
  • @DStanley thank you both for your comments. Property is in Ohio. Now, I think the seller means that the current seller originally got into "ownership" by becoming a member of the LLC and receiving income. I do not know the tax code, but it would seem to prevent taking advantage of depreciation, deductions, etc. I want direct ownership, so I will stay away from the listing / seems shady. Thank you! Sep 2 at 13:55
  • @littleadv Thanks for looking into it. Sep 2 at 13:56

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You mentioned that the property is in Ohio. In Ohio property values for the purpose of the property taxes are reassessed every 6 years (source). It doesn't appear that the change of ownership is a factor, only the passage of time (and changes to the property may trigger reassessment, such as remodeling or alterations).

Concealing the transaction from the auditor may affect such reassessment, but only marginally. It will only affect it significantly if everyone does that, otherwise the auditor will just use comparable sales around you to determine the value of your home.

Keeping the title in the LLC and passing the LLC around may have other drawbacks:

  • You may find it hard to get financing for such a transaction, conventional banks don't want to have LLCs as debtors
  • You may find it hard to get title insurance, since the title doesn't technically change.
  • It is difficult to confirm the LLC owners (in some States even impossible), so you may have potential scams involving LLCs
  • You're bound by the existing LLC operating agreement and incorporation papers, which may or may not be convenient to you. You may be limited as to how you can change them.
  • You will be bound by the existing LLC contracts, which you may not even be aware of.

I'd suggest to transfer title to yourself or to entity which is in complete control by you (your own LLC for example). You should probably ask an attorney licensed in Ohio both about the real estate aspects and any other potential pitfalls of such a transaction.

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  • It definitely sounds like a shady deal. Thanks. Sep 2 at 14:41

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