Just finish listening to Episode 196 with Brandon Hall who is a licensed CPA. He mentioned that forming an LLC is important. What are the benefits of forming an LLC for rental properties?
Mostly asset protection. From a tax perspective, at least if you’re small, it’s about the same with or without an llc.
Search BP for threads on this, it’s talked about a lot
It depends on what you are trying to do.
LLCs provide liability protection if you want to buy and hold properties under the LLC. However, liability protection can also be had with a good liability insurance policy so an LLC is not necessary, it’s usually not worth it for when someone’s starting out.
LLCs provide tax advantages of you are looking to flip properties by giving you the option to choose an s-Corp which helps minimize employment taxes.
Those are the two popular reasons for using LLCs that I am familiar with.
I've seen a lot of debate on whether or not there is protection of personal assets from forming an LLC, I'll let someone else kick that discussion off.
Personally, I did not form an LLC with the multifamily I bought this year but I wish I had. The reason being that the Trump/Republican tax plan will may lower the tax rate on LLCs from your top personal rate to the lower rate they will use on corporations. The latest I've heard any drop in the current corporate rate will possibly be phased in over multiple years. The advantage of this depends on your current/future top tax rate.
However, nothing is certain for now. Tomorrow at 9am they are supposed to provide their tax plan, I'll let you know what they say then. This will have a big impact on my own decision on LLC as I'm currently in the top tax rate. As you can guess with politics today though, who knows what will ultimately happen.
For the first property, you've got enough to worry about and I've seen that having LLC's and stuff get in the way of taking action. A good insurance policy and even an additional umbrella policy will get you the protection you need. You can even put the property into a TRUST if possible so that it can at least not have your name direct, but if you're getting a loan, banks may not like it deeded into a TRUST. An LLC will have like a $160 yearly fee but it will help protect you from a lawsuit getting to your personal assets if it ever surpasses the insurance claims. If the property is fully leveraged in a loan, there's not much to be had so the lawyer who is suing will not really be motivated.
The structure my lawyer advised me is to have each of my houses in its OWN LLC. Let the managing partner be ANOTHER LLC. Have insurance for each house. Then, have each property fully leveraged in a loan so the equity can be used in buying even more houses (bonus) and this is really strong protection.
Not a lot, in my opinion. Here's general info on LLCs for rental properties-
There's tons of extra info in the comments section too.
In my opinion there are more downfalls than perks. But ultimately, always double-check any decision with your accountant.
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