This past December, Ohio House Bill 449 was introduced which, if passed, would dramatically increase the amount of tax owed for many real estate transactions.
A common tool for estate planning and asset protection is for people to place their real estate into LLC’s in order to make sure it gets properly divided among their children, and as a way to protect it from creditors. A secondary benefit of doing this is the avoidance of transfer tax when the real estate changes hands. The bill is aimed at closing the “loophole” exploited by some where real estate is intentionally transferred between buyer and seller not by deed, but rather by simply putting the property into an LLC and then selling the LLC; thereby avoiding the transfer tax.
Under the proposed law, whenever a “Qualifying Transfer” (greater than 50% change in ownership within one year) is made, a disclosure must be made to the county where the real property is located, and the new owner must remit the transfer taxes. The transfer tax in Hamilton County, for example, is $4.00 per $1,000 of the sale price, so a $300,000 house would cost $1,200 in taxes. Ok, big deal, right? Actually it is. Not only would this be the one-time hit, but this transfer would likely trigger a revaluation of the property and would, therefore, increase annual property taxes. This would also have a significant negative impact on those that had no tax motivation for setting up the LLC.
We at Wood + Lamping are monitoring this house bill closely to determine what impact it may have if passed. Please contact your W+L real estate or estate planning attorney with any questions or concerns you may have.