Just starting out in real estate investing. If I plan to have a rental property in CA and plan to have it under an LLC, does the LLC have to be based in CA or can it be formed in my home state (out of CA)? Can an LLC formed in one state have a rental property in another state?
The short answer is that yes, an LLC formed in one state can generally own property located in another state. 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 likely be deemed to be "doing business" in California and therefore likely subject to CA taxes. If the property is located in California, you will inherently be "doing business" in California and subject to California income taxes (both for LLC and for you on a personal level). 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.
Be sure to tell your accountant that you now need to file non-resident income tax returns in each state where you own property as well. 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 are covered. The state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner live elsewhere, you may want to consider if you want to arbitrate in that state if the two of you had a disagreement. 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.
*This post is informational only and is not to be relied upon. Readers are advised to seek professional advice. This post does not create an attorney-client or CPA-client relationship.