LEX VINI

Avoiding Tax Reassessment in Transfer of Vineyard or Winery Properties

California real property is reassessed upon certain transfers causing higher (or lower) property taxes. Generally, a reassessment will occur when ownership of the property is transferred. Exclusions from reassessment are available for transfers of real property between spouses and between a parent and a child. Therefore, family owned vineyards and winery property may have been transferred down through generations without being reassessed and without a significant increase in property taxes.

Vineyards or winery property held in a legal entity (e.g., a corporation, partnership or LLC) are subject to reassessment upon a change in ownership of the entity, but the exclusion from reassessment for transfers between parent and child does not apply.  Entities are subject to a complicated set of rules that determine when a change in ownership takes place resulting in a reassessment.  If you are not careful, a transfer of a 1% interest of the entity can cause an unexpected reassessment of the entire property.  The death of a shareholder, partner or LLC member can be a reassessment event as his or her interest passes to the next generation.
Generally, a transfer of entity interests results in a reassessment if someone acquires more than 50% of the entity or if there is a cumulative transfer of more than 50% of the entity.  Whether any particular transfer is a change in ownership depends on how the entity acquired the property, the details of prior transfers and any applicable exclusions.
Beginning in 2010, any change in ownership of an entity that holds real property in California must be reported to the California Board of Equalization on Form BOE 100.  Failure to report a change in ownership can result in a 10% penalty.  County assessor forms required upon the death of a real property owner now include a question about the decedent’s interest in any legal entity.
If your vineyard or winery property is held in a legal entity, always consider the property tax consequences before restructuring or making transfers of shares or interests.  A review of potential property tax issues should be included in every vineyard or winery owner’s estate plan as well.
For further information or assistance with estate planning matters, please contact Dickenson, Peatman & Fogarty at [email protected].
Copyright Dickenson Peatman & Fogarty at www.lexvini.com

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