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California Real Estate Q&A Discussion Forum

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Jon Lee
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​Living in CA, own rentals in OR with sister. Where to form LLC?

Jon Lee
Posted Jan 24 2022, 16:09

I live in California. My sister lives in Oregon. We own rental properties in Oregon. We want to setup a LLC in Oregon for the properties, but do I need to also setup a California LLC and/or pay the $800 LLC tax in California?

My sister manages everything. If we set up a LLC partnership agreement where she has all decision making authority, can we get by with just the Oregon LLC?

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Jon Lee
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Jon Lee
Replied Jan 24 2022, 16:31

One more question. To avoid partnership returns, can we just each have an LLC in Oregon that own the properties 50/50? We would have an agreement where my sister would make all decisions.

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Mark Tomseth jr
  • New to Real Estate
  • Bend, OR
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Mark Tomseth jr
  • New to Real Estate
  • Bend, OR
Replied Jan 24 2022, 17:19

Hi Jon! What a great question.  If you don't get a response here you might try a website/app called "JustAnswer" I've received some good information from unrelated legal questions in the past.  Good Luck!

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Sonny Vu
  • Flipper/Rehabber
  • Saratoga, CA
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Sonny Vu
  • Flipper/Rehabber
  • Saratoga, CA
Replied Jan 25 2022, 06:57

Hi Jon. Please consult a CPA and attorney. It sounds like you are concerned about structuring and taxes. As it has been explained to me, you should structure the entity in the state that the property is located. That being said, since you live in CA. the state wants their cut of your income regardless of which state you make it in. So you will be paying CA on your state returns. But once again, refer to your CPA advice, there may be some sort of reciprocation agreement where if OR collects taxes, you may be exempt from that portion for CA state income purposes. But you really should seek professional advice. Good luck on your venture!

-Sonny

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David M.
  • Morris County, NJ
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David M.
  • Morris County, NJ
Replied Jan 25 2022, 07:39

@Jon Lee

Yes, you need the LLC to be formed or registered in the State where the property resides. Otherwise, the LLC will have no legal standing in that State since they are legal entities formed by a State.

As I understand it, CA will want to charge you $800 /yr regardless of where your LLC's are located. Sorry. But, you don't need a separate CA LLC.

Not sure how you'd be avoiding a partnership return. With two members of the LLC, it will be taxed as a partnership unless you elected something different, which wouldn't be to your advantage anyway. Other than providing limited liability protection, the LLC is also allocating your profit/losses to you individual returns. I assume you two are jointly holding Title which basically gives you a 50/50 split.

Does that make sense?

Otherwise, you'll need to consult a qualified professional or two.

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Replied Jan 31 2022, 21:46

Definitely speak with an attorney to set up the structure. But it doesn’t appear to be a reason to set up a California llc. The llc won’t be conducting business in California so won’t need to register with state (pay the $800) just because you live there.  Even if you and your sister have separate llcs, there is still a partnership between those llcs operating the rental properties. The partnership income will flow to your California state tax return. So most likely all that having two llcs is doing is doubling costs for registrations/annual filings.