Does a short term rental need to be set up in a LLC?

Question

I'm under contract to close on my first short term rental (vacation home..AirBnB)... I understand the LLC would be helpful if ever I sold the place so there is no need to re-permit. Any tax implications? Any other considerations?

Eric P. · Answer

This question comes up a lot & I get the feeling that some folks don’t really understand how an LLC works. The LLC isn’t to protect your rental property (that’s what insurance is for); the LLC is to isolate your property so if you get sued no one can touch your OTHER assets that aren’t in the LLC.

If you have valuable other assets (bank accts, stocks, bonds, brokerage accts, 401k, other houses, etc), then it’s worth considering an LLC for the rental property so if something happens & you’re sued, the lawsuit is isolated to just the LLC & not your personal assets (if done properly). Also, I’m not a lawyer & there are certainly some nuances beyond this that a good lawyer can tell you - this is just a high-level overview

Steve Frye · Answer

For a non-owner occupied property, you can absolutely set it up under an LLC and get a permit that way.  From a loan standpoint, they still need a person to connect it to and not the LLC but for permit you can.

For owner-occupied, it has to be permitted under an individual, not an LLC.  I've sold probably 15 STRs in Nashville since January and several of those have been out of state clients that set up the permit under an LLC.

Brian Elfstrom · Answer

You would have to pay franchise and excise tax as an LLC unless you waive your liability shield and become an Obligated Member Entity (OME) which defeats the purpose.

What is your goal, to protect your personal assets?  You can always talk to an insurance agent to cover your concerns.  They will probably recommend an umbrella.  Also, be careful you don't become over-insured.  You already have Airbnb Host Protection Insurance. While it does have gaps, they are more related to long-term maintenance and loss of earnings.

Or prevent a personal guarantee?

Steve Frye · Answer

@John Oden Absolutely!!

John Oden · Answer

@Steve Frye Thanks for your correction re NOO permits set up as LLCs. I had OO permits in mind when I posted.

Chad Ramsey · Answer

Thanks for your insight gents.

John Oden · Answer

And one more...STR permits do not convey with the property when sold.

John Oden · Answer

I should have added, no NOO permits in zones R and RS. Some RM (multi-family) still available  Cheeck to make sure  HOA allows.

John Oden · Answer

Short term rentals in Nashville Davidson county can only be held by a natural person, no LLC or any other entity

Also, owner occupied only. Non-owner occupied was phased out almost 2 years ago.

Does a short term rental need to be set up in a LLC?

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