Whether you’re simply considering renting out a property you own, or you already have an income producing property- one question you should be asking is, “Should I have my rental in an LLC?” There are a variety of reasons why, as a landlord, putting your property into a limited liability company is a smart idea.
Owning a property as an individual puts your assets at risk in the event of an accident. When a property is owned in this way, most people don’t realize that if someone were to slip and fall on the property or have any other accident- this puts the property owner’s home, investments, savings, and other financial life at risk in the event of a lawsuit. When a property is owned by a limited liability company- then, the risk is minimized to exclude the personal assets.
Now, there’s a difference between an LLC and a Corporation that a lot of people get somewhat fuzzy on. The reason you would go with an LLC vs a an S Corp would be tax liability. If you are the only person on an LLC, you will be taxed the same as a sole proprietorship, if you choose that option. Income, capital gains and the like from that LLC pass directly on to you- so, you end up paying taxes just the same as if you were an individual, rather than dealing with the separate tax and double taxation issues that often come with corporations. Even if you do have a partner, the capital gains and income still pass directly to you and your partner- so, it just makes a lot more sense. That’s not to say you can’t still opt to be taxed as an S or C corp, you can- but you’ll have to meet certain other requirements.
For those who do have more than one rental property- putting each property into its own, separate LLC can be a great way to protect your assets: this limits the liability to the interest of that property alone and not the other ones. Another option to consider discussing with your attorney is having one parent company and using the LLCs beneath it to own each rental property.
Though you can set up a limited liability company by yourself, having an attorney is always much better- this will help you to make the most of your LLC, but also help you to know all of the tax advantages and protections that may be available. The benefits of an LLC will vary from state to state, so it is important for those thinking about putting their rentals in an LLC to seek an experienced attorney.