Forming an LLC for Out of state rental properties

7 Replies

Hello All. I live in california and about to close on my first rental property in Cleveland, Ohio, and getting goosebumps over forming an llc. What am I supposed to do? Form an LLC in CA and bring Ohio (or any other state) property under it (Is it even possible)? Any professional references who can help with this are deeply appreciated. Thanks

Originally posted by @Avinash Dongarwar :

Hello All. I live in california and about to close on my first rental property in Cleveland, Ohio, and getting goosebumps over forming an llc. What am I supposed to do? Form an LLC in CA and bring Ohio (or any other state) property under it (Is it even possible)? Any professional references who can help with this are deeply appreciated. Thanks

 You have two choices. 

You can form a California LLC and register it as a foreign business in Ohio or you can just form an Ohio based LLC.

@Avinash Dongarwar

I recently just did the same thing. You can setup the LLC in any state and under the question " which state will this business mainly operate in" you can put Ohio. I would obviously check with an attorney, but that's just my experience. I also made sure I did it right by having a professional write it up and submit it.

@Avinash Dongarwar this may help...from another forum on BP

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.

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. As a California resident, I would recommend hiring a CA CPA or at least one familiar with CA laws. California tends to be more complex than most other states from a tax standpoint (well really all standpoints it seems) and as a California resident, you will be taxed on ALL your income in California. In Ohio or another state where you own property, you likely will only be taxed on the income earned in that state and need to file a nonresident return rather than a resident tax return.

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. 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.

Let me know if you need referrals for attorneys or accountants in Southern California.

*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.

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.

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. As a California resident, I would recommend hiring a CA CPA or at least one familiar with CA laws. California tends to be more complex than most other states from a tax standpoint (well really all standpoints it seems) and as a California resident, you will be taxed on ALL your income in California. In Ohio or another state where you own property, you likely will only be taxed on the income earned in that state and need to file a nonresident return rather than a resident tax return.

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. 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.

Let me know if you need referrals for attorneys or accountants in Southern California.

*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.

Originally posted by @Avinash Dongarwar :

Hello All. I live in california and about to close on my first rental property in Cleveland, Ohio, and getting goosebumps over forming an llc. What am I supposed to do? Form an LLC in CA and bring Ohio (or any other state) property under it (Is it even possible)? Any professional references who can help with this are deeply appreciated. Thanks

 I can give you a list of attorneys here in Ohio