Out of state LLC formation

6 Replies

I live in California and am thinking of purchasing some property in Virginia. I want to keep the property under it's own LLC. The question I am mulling over is - which state to establish the LLC in? Is owning rental property which gives income, considered 'doing business' in a state? My current understanding is that in that case I will be double taxed if I opened an LLC in California and own rentals in Virginia. What do other people do who invest out of state?

Depends on if you're only going to do business in VA with that LLC or if you'll also invest in CA. If that's the case, then it's best to incorporate in your home state. Single member LLCs are disregarded entities for tax purposes. Meaning you'll be filing taxes as a self-employed individual, and you'll be double taxed with or without it. If your business is investing in rental properties then yes, you are "doing business" in that state.

Ah so how do people usually set up the business entities when investing out of state? There is a new tax bill too so really looking for some examples to use for guidance :)

@Brahm Kiran Singh

It is normally suggested to create the LLC in the state that you plan to own the property.
In your case - you would open the LLC in Virginia.

If the LLC is a single member LLC - Then you would file a nonresident income tax return with Virginia and report your rental activities.
You would also be required to file a California resident tax return where you would also report the income/loss generated in VA. California will provide you a credit for any taxes paid to Virginia offsetting double taxation at the state level.

You may also be required for file form 568 with California.

Basit Siddiqi, CPA
917-280-8544
Originally posted by @Brahm Kiran Singh :
I live in California and am thinking of purchasing some property in Virginia. I want to keep the property under it's own LLC. The question I am mulling over is - which state to establish the LLC in? Is owning rental property which gives income, considered 'doing business' in a state? My current understanding is that in that case I will be double taxed if I opened an LLC in California and own rentals in Virginia.

What do other people do who invest out of state?

You have to pay taxes in either case, not getting double taxed, LLC is good if you think you fit the box for one, ask your attorney more importnantly ask your CPA - best means to the end

Steven Gesis, Developer
440-374-8403

While everyone on here may have good ideas, I wouldn't do a single thing without consulting directly with an REI-friendly CPA. Opinions on how to structure that kind of thing can be all over the board and I think only the pros can say for sure one way or another what would be most advantageous.

Can I ask why you're thinking of going the LLC route?

Join the Largest Real Estate Investing Community

Basic membership is free, forever.