Should I put rental in LLC in California?
Member since 2021 · 24 posts · 7 votes
Should I put rental in LLC in California?
13 Replies
- Lender · Chicago, IL · Member since 2021 · 424 posts · 145 votes1y
Quote from @Gin Zhuang:
Hi everyone,
Should I put my rental into LLC in California? I heard that California LLC is very easy to pierce through and it might not provide any benefits. Is this true? What is your recommendation? Thank you!
Best,
Gin
Not true if you do it right but also not dispositive to the question. Get a GOOD insurance policy.
- Member since 2021 · 24 posts · 7 votes1y
Quote from @Jason Taken:
Quote from @Gin Zhuang:
Hi everyone,
Should I put my rental into LLC in California? I heard that California LLC is very easy to pierce through and it might not provide any benefits. Is this true? What is your recommendation? Thank you!
Best,
Gin
Not true if you do it right but also not dispositive to the question. Get a GOOD insurance policy.
What would you consider as a good insurance policy? Do you have any recommendation on company, agent, or what terms I should look for in these policies? Thank you!
- CPA and Attorney · San Diego, attorney · Member since 2022 · 301 posts · 219 votes1y
There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.
California is generally more involved than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you may be deemed to be "doing business" in California and therefore maybe 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 may 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 may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you may need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.
Any lawsuits should in theory be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.
If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.
Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs. You'll also want to coordinate with your estate plan, and consider getting an estate plan if you do not yet have one in place.
These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.
*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
- Member since 2021 · 24 posts · 7 votes1y
Quote from @Katie Balatbat:
There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc. Same goes for number of LLCs and what to fund them with, since bear in mind that CA tends to be more cumbersome and expensive to have LLCs than other states.
California is generally more involved than other states when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you may be deemed to be "doing business" in California and therefore maybe 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 may 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 may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you may need to pay registration and filing fees in at least 2 states if you don't buy CA property as a CA resident.
Any lawsuits should in theory be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced, some debate as to SMLLC). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. Or, a charging order may be granted. If you have a loan, you may wish to look into due-on-transfer clauses.
If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.
Creating an LLC in California could cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation. California does not recognize series LLCs. You'll also want to coordinate with your estate plan, and consider getting an estate plan if you do not yet have one in place.
These are all things you will want to discuss with your attorney and CPA. If you need references for either of them in San Diego, let me know.
*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
Thank you so much for sharing the detailed analysis. This is very helpful! I was reading on land trust, Wyoming LLC, CA LLC, etc. The more I read, the more I found CA just really do not want you to hold any asset here. lol The transfer to an LLC or trust could also trigger reassessment of property value.
You mentioned that If you're going the umbrella insurance route, perhaps see if it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention. Other than slip and fall, mold, earthquake, what else should I make sure my insurance include? Especially is there anything unique and rare that people often miss? Thank you!
- 1yAaron ZimmermanBusiness MemberAccountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
Piercing the corporate veil is dependent on the owner of the LLC. If you commingle funds, then you've already pierced the veil on any LLC, whether it's in California or Texas.
As noted above, there may be an $800 LLC fee. I would look to see if you can structure things in a way that has you as the only member in the LLC.
Brick House CPAs53 Reviews- Member since 2021 · 24 posts · 7 votes1y
Quote from @Aaron Zimmerman:
Piercing the corporate veil is dependent on the owner of the LLC. If you commingle funds, then you've already pierced the veil on any LLC, whether it's in California or Texas.
As noted above, there may be an $800 LLC fee. I would look to see if you can structure things in a way that has you as the only member in the LLC.
Thank you for sharing your thoughts! I did some research online and found that the transfer could cause due on sale clause. Do you know how likely it will happen? Especially the interest rate is higher now. Would this incentivize them to call due on sale? Thank you!
- 1yAaron ZimmermanBusiness MemberAccountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
@Gin Zhuang due on sale clause is definitely tricky. The better way to do it is It reach out to your bank and see if they'd allow you to do it . Better to ask for permission than beg for forgiveness on this one. I've had a couple of my clients successfully do this by asking first and explaining to the bank what they were looking to do
Brick House CPAs53 Reviews - Member since 2021 · 24 posts · 7 votes1y
Quote from @Aaron Zimmerman:
@Gin Zhuang due on sale clause is definitely tricky. The better way to do it is It reach out to your bank and see if they'd allow you to do it . Better to ask for permission than beg for forgiveness on this one. I've had a couple of my clients successfully do this by asking first and explaining to the bank what they were looking to do
Do you know what they told the bank to get permission for the transfer? If I explain that I no longer live in the property, that it’s now a rental, and that I want liability protection, is that something the bank would typically understand and accept?
- 1ySean O'KeefePro MemberCPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 870 votes
Quote from @Gin Zhuang:
Hi everyone,
Should I put my rental into LLC in California? I heard that California LLC is very easy to pierce through and it might not provide any benefits. Is this true? What is your recommendation? Thank you!
Best,
Gin
Certainly a bit biased here, but we would strongly recommend setting up LLCs for the properties, and ideally pairing them with a holding company in WY, DE, or NV to fully separate the risks and liabilities of each of the properties from your own personal liability, and vice versa. Your best protection will come by having each property in it's own LLC as well, though at minimum one per state. The goal of insurance is to accept your money and not make any payments out, whereas a structure of LLCs is designed and owned 100% by you and for your protection. FL and CA are each a bit of a unique scenario as well, so if you want to reach out directly, I'm happy to talk one-on-one about the details.
This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No CPA-client, fiduciary, or professional relationship is established through this communication.
- Member since 2021 · 24 posts · 7 votes1y
Quote from @Sean O'Keefe:
Quote from @Gin Zhuang:
Hi everyone,
Should I put my rental into LLC in California? I heard that California LLC is very easy to pierce through and it might not provide any benefits. Is this true? What is your recommendation? Thank you!
Best,
Gin
Certainly a bit biased here, but we would strongly recommend setting up LLCs for the properties, and ideally pairing them with a holding company in WY, DE, or NV to fully separate the risks and liabilities of each of the properties from your own personal liability, and vice versa. Your best protection will come by having each property in it's own LLC as well, though at minimum one per state. The goal of insurance is to accept your money and not make any payments out, whereas a structure of LLCs is designed and owned 100% by you and for your protection. FL and CA are each a bit of a unique scenario as well, so if you want to reach out directly, I'm happy to talk one-on-one about the details.
This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No CPA-client, fiduciary, or professional relationship is established through this communication.
Hi Sean, thank you for sharing these insights with me! What about Land Trust? After a bit research, the best structure seems to be having a land trust to hold the property; a CA LLC with my Wyoming holding LLC as the beneficiary and another CA LLC with my Wyoming holding LLC as the trustee. I will transfer the property to the Land trust with me as the beneficiary first to avoid due on sale and valuation reassessment. Once it is done, I will transfer the beneficary and trustee into CA LLCs to get the liability protection. What do you think about this structure? Thank you!
- 1yAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Putting your California rental into an LLC rarely makes sense. The LLC doesn't create new deductions, rental income and expenses still flow through to your tax return the same way. However, California imposes an $800 annual franchise tax, plus an additional gross receipts fee if rental income exceeds $250,000. That means you're paying extra each year without gaining any direct benefit.
On the liability side, an LLC can provide separation between you and the property, but in California courts it's easier to "pierce the veil" if you don't keep up with formalities. For most landlords, it's more practical to rely on landlord insurance plus an umbrella policy, which is both stronger in practice and much cheaper to maintain than an LLC.
In short, for a single rental or small portfolio, keeping the property in your name with solid insurance coverage is typically the most tax-efficient choice. An LLC adds cost without reducing taxes, so unless there are broader liability or estate planning goals, it generally doesn't improve your overall tax position.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
INVESTOR FRIENDLY CPA®5241 Reviews- Member since 2021 · 24 posts · 7 votes1y
Quote from @Ashish Acharya:
Putting your California rental into an LLC rarely makes sense. The LLC doesn't create new deductions, rental income and expenses still flow through to your tax return the same way. However, California imposes an $800 annual franchise tax, plus an additional gross receipts fee if rental income exceeds $250,000. That means you're paying extra each year without gaining any direct benefit.
On the liability side, an LLC can provide separation between you and the property, but in California courts it's easier to "pierce the veil" if you don't keep up with formalities. For most landlords, it's more practical to rely on landlord insurance plus an umbrella policy, which is both stronger in practice and much cheaper to maintain than an LLC.
In short, for a single rental or small portfolio, keeping the property in your name with solid insurance coverage is typically the most tax-efficient choice. An LLC adds cost without reducing taxes, so unless there are broader liability or estate planning goals, it generally doesn't improve your overall tax position.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
Hi Ashish,
Thank you for sharing! My main goal is liability protection. I realize my portfolio is still small and that setting up structures might cost more than I really need right now — but for me it’s mostly about peace of mind.
You mentioned that good insurance could actually protect me better than an LLC. Could you share a bit more on that? Also, what should I look for to know and make sure that I have a strong landlord policy and umbrella insurance?
- 1ySean O'KeefePro MemberCPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 870 votes
Quote from @Gin Zhuang:
Quote from @Ashish Acharya:
Putting your California rental into an LLC rarely makes sense. The LLC doesn't create new deductions, rental income and expenses still flow through to your tax return the same way. However, California imposes an $800 annual franchise tax, plus an additional gross receipts fee if rental income exceeds $250,000. That means you're paying extra each year without gaining any direct benefit.
On the liability side, an LLC can provide separation between you and the property, but in California courts it's easier to "pierce the veil" if you don't keep up with formalities. For most landlords, it's more practical to rely on landlord insurance plus an umbrella policy, which is both stronger in practice and much cheaper to maintain than an LLC.
In short, for a single rental or small portfolio, keeping the property in your name with solid insurance coverage is typically the most tax-efficient choice. An LLC adds cost without reducing taxes, so unless there are broader liability or estate planning goals, it generally doesn't improve your overall tax position.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
Hi Ashish,
Thank you for sharing! My main goal is liability protection. I realize my portfolio is still small and that setting up structures might cost more than I really need right now — but for me it’s mostly about peace of mind.
You mentioned that good insurance could actually protect me better than an LLC. Could you share a bit more on that? Also, what should I look for to know and make sure that I have a strong landlord policy and umbrella insurance?
I disagree with @Ashish Acharya (who's based in Florida) I'm based in California. One of our clients based in California, that's a landlord, was sued after a tenant fell down the stairs in the rental property and died a couple weeks later from the injuries. The LLC help in this case.
..
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This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
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