BiggerPockets

This post is meant to be informative in nature, since I found it a little difficult to find all of the answers I was looking for regarding Texas LLCs and I wanted to share my findings on BiggerPockets. Naturally, I will focus on forming a Texas LLC for the purpose of holding investment properties.

Currently (and this seems to change from time to time), the fee to form an LLC in Texas is $300. (https://direct.sos.state.tx.us/help/help-corp.asp?pg=fee ) Of course, when you factor in legal fees, the formation of company articles and the like, you're looking at spending anywhere from $1000-3000 depending upon your lawyer.

That's the easy info. What's the cost of maintaining a Texas LLC? I'm glad you asked.

There are no additional annual filing fees for maintaining a Texas LLC. They are, however, subject to a franchise tax.

However... it is unlikely you will have to actually pay any sort of franchise tax. Take the following snippet from http://www.window.state.tx.us/taxinfo/franchise/faq_rpt_pay.html#rpt_pay2:

16. What are the criteria for filing no tax due reports?
A taxable entity, including a combined group, qualifies to file a No Tax Due Report if it meets one of the criteria below:

* has zero Texas receipts,
* qualifies as a passive entity under TTC 171.0003,
* is a real estate investment trust (REIT) that meets the qualifications specified in TTC 171.0002(c)(4), or
* has total revenue, annualized per 12 month period on which the tax is based, below the no-tax-due threshold amount defined below.

The no-tax-due threshold is:

* $300,000 or less for franchise tax reports originally due on or after January 1, 2008 and before January 1, 2010.
* $1,000,000 or less for franchise tax reports originally due on or after January 1, 2010 and before January 1, 2012.
* $600,000 or less for franchise tax reports originally due on or after January 1, 2012.

Thus, unless the rental properties held by your LLC are generating revenue in excess of $300,000/year, you aren't going to be paying any fees to maintain your LLC. I don't know how this all works in the event you sell property held by the LLC for capital gains, but I'm sure a competent CPA could explain all of that.

Thus, if you are forming a Texas LLC and you live out of state, your only expense could be that for maintaining a 'Registered Agent', which I have found ranging from $100-$300 per year. Not too bad for the purposes of adding an additional layer of liability protection to your portfolio.

Steven,

Those are fantastic points that I think any investor would benefit from hearing. Fortunately, my investment properties are located in Texas so there is no need for me register a foreign entity. My understanding is that, in most cases, it is best to hold properties in an LLC registered in the state the properties are located.

Good post Kyle.
Couple of quick things to add, is that regardless if your LLC does not have to pay a Franchise Tax, you must still file with the state, although I guess that's a known.
Also, no need to use an attorney, just go directly to the SOS. Another option, is use Lawyer's Aid Service in Austin. They have been my registered agent for 9 years. They can file and be your registered agent. One stop shop.
Costs $120 a year.
Suite 101
408 W. 17th St.
Austin, TX 78701