@George Chung - We invest in St. Louis as well as other markets and set up our LLC here in CA. If you ever decide to move into another market, I wouldn't want to set up a separate LLC in each individual market
@George Chung - We invest in St. Louis as well as other markets and set up our LLC here in CA. If you ever decide to move into another market, I wouldn't want to set up a separate LLC in each individual market
Based on CA tax laws, you (CA resident) will pay CA tax and franchise tax no matter where LLC is. Thus most cost affective way for CA residents is actually set up LLC in CA and register LLC in another state (where your property is) as foreign entity. You will pay both CA franchise tax and state tax from that state. Most cost affective way for set up LLC is dependent on your state residency and respective state tax code.
If you have a lot of properties with lots of gross rent income, it might be best to separate into multiple LLCs. Once your gross rent income is over ~$250k (can't remember exact $$), your CA franchise tax increases quite a bit. It might be cheaper to have 2 LLCs each with $130k gross rent.
My wife is partner in an accounting firm, so she has done quite a bid of analysis to save our tax.
I agree with what @Edward Liu is saying. The only strategy I have seen that avoids this fee is through the use of a Delaware Statutory Trust. It functions in much the same way as a Series LLC would function, but since it is classified as a trust you are not required to pay the annual franchise taxes in California that an LLC would. The only downside I have seen in working with the DST for clients from CA is that it has a highest upfront cost to create. However, considering the fact that you will be saving $800+ per LLC, per year, this often will end up saving you money after a few years.
This is not legal advice, just my opinion as a real estate investor.
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. 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.
*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.