Best Way to Structure business entity (LLC?) for Rentals in CA and TX?

[Bob V.]

Hi everyone,

I’m looking for some guidance on the best way to structure my business entity for rental properties and would love to hear your experiences or advice.

I live in Texas, but I currently own two long-term rental properties in California. Now, I’m planning to add a couple of short-term rental properties here in Texas. I want to set things up correctly from both a liability protection and tax-efficiency standpoint but I’m not sure what the smartest approach is.

I want to make sure I’m protected personally, while not overcomplicating things or eating up profits with unnecessary entity costs.

If anyone has been through a similar situation—owning properties in more than one state—and can share what structure worked well (or what to avoid), I’d really appreciate the insights.

Thanks in advance!

[Ashish Acharya]

@Bob V. 

Since you’re in Texas with rentals in both CA and TX, you’re juggling two very different legal and tax environments. Here’s a clear way to think about structuring things without overcomplicating:

• California rentals:
  • If you put CA properties into an LLC, you'll pay the $800 minimum CA franchise tax per LLC, plus gross receipts fees if income is high enough.
  • Many investors hold CA rentals in their personal name (with strong insurance/umbrella coverage) to avoid these fees, unless liability exposure is a big concern.
  • From a tax perspective, LLCs in CA are pass-through, so the income and depreciation still flow to your personal return.
• Texas rentals:
  • Texas doesn’t have a state income tax, which makes holding STRs here more straightforward.
  • An LLC in TX can give you liability protection without the heavy franchise taxes CA charges (the TX franchise tax only kicks in above ~$2.47M revenue in 2025).
  • If your STRs qualify under the STR material participation rules, you could use bonus depreciation to offset W-2 income—LLC ownership doesn't take that away since income still flows through.
• Cross-state strategy:
  • You don't necessarily need one LLC per property—many investors group properties (by state or risk profile).
  • You could form a Texas holding LLC and register it as “foreign” in CA if you want uniformity, but this means you’ll still pay CA’s $800 tax per year.
  • A common approach: keep CA rentals in your own name with strong insurance, put TX STRs in a TX LLC, and avoid mixing states in one entity.
• Tax angle:
  • Whether you hold rentals in an LLC or personally, depreciation, expenses, and Section 179/bonus depreciation still flow through to your return.
  • The entity affects liability more than taxes—unless you elect S-Corp treatment for active businesses (not usually recommended for rentals).

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