California residents investing out of state, LLC, DST, etc?
Hello fellow investors. I am a California resident investing in Charlotte NC. I have a several SFRs and in the early stages working with a GC to build some new homes in the near future.
I've been operating my business under my own name for the past several years and I believe I'm at a point where I should begin to look more seriously into asset protection.
I looked into setting up an LLC, but I feel special because I'm 'lucky' to be a California resident. I learned that there are additional obstacles and expenses required for California resident. As I looked more into LLCs I realize asset protection is extremely complex.
Under California Revenue and Taxation Code (Tax Code), I would be considered 'doing business in California if any of the criteria below is met and I would need to create an LLC in California:
- 1-If your gross sales for the company is 25% or more for the State of California, or the gross sales exceeds a threshold (just over $600k) IN the State of California, even if under 25% of your overall sales
- 2-Or, the assets (real or personal property) owned by the company and located in the State of California is 25% or more of the total assets of the company, or the total assets exceeds a threshold (just over $60k) IN the State of California, even if under 25% of the assets owned by the company.
- Under this requirement, would one's personal California home be considered 'asset' under this definition???
- 3-Or, the payroll compensation paid is 25% or more in the State of California, or the California payroll compensation exceeds a threshold (just over $60k), even if under 25% of the overall compensation paid to folks outside of CA.
How are my fellow California residents structuring their business for asset protection while still operating their out of state portfolios (rentals, buy and hold, renovations, new builds, etc)?
Do you setup a California LLC then register that as a foreign LLC in the state that you own investment properties?
Alternatively, I believe one can setup an LLC out of state as the managing LLC for your California LLC?
How's everyone doing this??
Thank you...
Jason
Geez. Time to get out of California
Quote from @Jason Pham:
Hello fellow investors. I am a California resident investing in Charlotte NC. I have a several SFRs and in the early stages working with a GC to build some new homes in the near future.
I've been operating my business under my own name for the past several years and I believe I'm at a point where I should begin to look more seriously into asset protection.
I looked into setting up an LLC, but I feel special because I'm 'lucky' to be a California resident. I learned that there are additional obstacles and expenses required for California resident. As I looked more into LLCs I realize asset protection is extremely complex.
Under California Revenue and Taxation Code (Tax Code), I would be considered 'doing business in California if any of the criteria below is met and I would need to create an LLC in California:
- 1-If your gross sales for the company is 25% or more for the State of California, or the gross sales exceeds a threshold (just over $600k) IN the State of California, even if under 25% of your overall sales
- 2-Or, the assets (real or personal property) owned by the company and located in the State of California is 25% or more of the total assets of the company, or the total assets exceeds a threshold (just over $60k) IN the State of California, even if under 25% of the assets owned by the company.
- Under this requirement, would one's personal California home be considered 'asset' under this definition???
- 3-Or, the payroll compensation paid is 25% or more in the State of California, or the California payroll compensation exceeds a threshold (just over $60k), even if under 25% of the overall compensation paid to folks outside of CA.
How are my fellow California residents structuring their business for asset protection while still operating their out of state portfolios (rentals, buy and hold, renovations, new builds, etc)?
Do you setup a California LLC then register that as a foreign LLC in the state that you own investment properties?Alternatively, I believe one can setup an LLC out of state as the managing LLC for your California LLC?
How's everyone doing this??
Thank you...
Jason
We have LLC organized in a different state and just have it registered in CA as a foreign llc so we can pay the $854 for the privilege of doing business in CA. Doing business in CA is essentially any communication about managing your portfolio at all so if you reside in the state there is not really any legal route to not be subject to the franchise tax.
Being a California resident can be a trick when navigating LLCs with due to the franchise tax. While using an LLC or Corp to own propertly remotely wouldnt require a foregin filing in the state of the property (property can be held remotely without needing a foregin filing as its not "doing business" in the state), the issue you will run into with an LLC or corporation in CA is the yearly fee. From the CPAs we work with, just being a CA resident puts you at risk of an entity, other than trust, being subject to the franchise tax. To avoid the yearly fee, we recommend using a DST. It avoids the CA franchise tax, is scalable so you can add multiple assets under it while benefiting from the liability minimixation structure of child series' , and it can streamline your operations by using one set of books, bank account, etc. The DST can minimize liability by having each property in its own child series, streamline your operations, and minimize taxes.