Which state should I form an LLC in?

Question

I'm purchasing a duplex in Alabama but I live in Texas. Which state should I form an LLC in? What would be best for tax purposes?

Greg Parker · Answer

@Monica London I agree, have it in Alabama. When you get a lot of them, then put all LLC's in an anonymous LLC or trust. ONly a few states allow that, Delaware, Wyoming, Nevada, New Mexico, Ohio. That way you can hide all of your assets from angry tenants and attorneys.

Disclaimer, this is not legal advice, just something a friend of mine does.

John Malone · Answer

In the end, no, you cannot hide assets.  Any court can quite simply access beneficial ownership (and soon the Fed will as well with the Corp Transparency Act).  You can make it more difficult to figure out ownership BUT most seasoned litigators can parse through this with the tools at their disposal.  There is nothing wrong with making it difficult though!

Clark Peterson · Answer

Hi @Monica London, questions about LLCs is one of those topics on BP where you are liable to get a variety of answers to what seems like a single, simple question. So with the caveat that others may disagree, I generally find that forming the LLC in the same state as the property is the best way to go. If you form the LLC in one state and use that entity to hold title to property in another state, it becomes a "foreign" LLC and requires separate registered agent services and possibly additional paperwork. Long story short, forming an LLC in a state different from the location of the property increases the cost and complexity of maintaining the entity in good standing. In most states, forming an LLC is relatively inexpensive (<$200) so keeping it clean and simple to maintain is a major benefit to consider. Please don't hesitate to reach out if you'd like to look at the details for Alabama LLCs more closely. Thanks!

Sean Morrison · Answer

Disclaimer: I am an attorney, but I am not your attorney. This is not legal advice, just friendly information.

As a general rule, real estate holding LLCs should be created in the same state as the property. While some states have better protections for LLCs than others, when it comes to real estate courts only want to recognize local protections. You can always create an out-of-state company to own that LLC.

Since LLCs are pass-through entities, you won't find tax advantages in one jurisdiction over another, other than maybe the annual fee.

Brady Ferguson · Answer

I would recommend Alabama

Which state should I form an LLC in?

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