This is my first time posting anything on the forums. I'm currently looking for asset protection attorneys to help me set up my (S)LLC. However, I am based in California and planning on investing in the Ohio market. Should I be looking for an attorney here in CA or OH?
@Remington Lyman thanks for the reply. I sent you a connection request. Thanks Remington
@Costin I. I haven't heard of a DST. I'll look into it and definitely reach out to Scott. Much appreciated
There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc.
Any lawsuits would be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. If you're going the umbrella insurance route, make sure it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.
This article goes into a lot of the considerations about whether to form an LLC or not: https://www.mmpph.com/wp-content/uploads/2019/04/May-2019-newsletter.pdf
California is a sort of beastly state when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will be deemed to be "doing business" in California and therefore subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you will need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will need to pay registration and filing fees in at least 2 states if you don't buy CA property.
Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction.
California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you. It most likely will be cheaper to form your LLC in another state.
You also want to look at whether a pass-through entity helps your bottom line and your taxes. There is a new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies. You should still be able to get this even if the properties are not in an LLC, if you qualify.
These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.
*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
@David Hernandez Agree with Katie's post above, I also live in CA but invest in VT, where I'm originally from. Lots of extra paperwork and expense with the LLC's. After some detailed conversations with attorneys and CPA's, decided to go the umbrella insurance route. $500/yr for a $2M policy. However, to each their own, my circumstances may be different than yours.
Also remember most banks don't lend directly to LLC's.
@Katie Lepore thanks for sending the article over. I’ll take a look at it when I get home. You mentioned San Diego CPA/ Attorney. Is it okay to have the CPA and attorney here in California’ even though I will be investing in OH?
@Tom S. Interesting, okay. Are all your properties under your name? If so, are you still able to get the tax advantages that you would from creating a corporation?
@Tom S. by chance did you look into a DST? (I live in CA, invest OOS)
Depends. If you are forming a CA LLC, have a CA attorney draft it. If you are forming an OH LLC, have an OH attorney draft it. You'll still likely need a CA attorney to get an estate plan done if you haven't done that yet. As for CPAs, I would definitely recommend having a CA based CPA, or at least one who is very familiar with CA taxes. As a CA resident, you will be taxed on ALL your income in California, which happens to be a more complicated state from a tax standpoint than most other states. You will only be filing a non-resident income tax return in Ohio, and likely only be taxed on just your rental income there. You'll get an offsetting credit in CA for taxes paid in OH, though it doesn't usually totally offset due to higher tax rates in CA.
*This post does not create an attorney-client or CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
@David Hernandez There are no tax advantages for an LLC if you're the sole owner. For rentals, it's still reported on Sch E of your tax return.
@Rene Doyle Did not look into a DST at all.
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