All Forum Posts by: Katie L.

@Ryan Stover

California is a sort of beastly state when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will be deemed to be "doing business" in California and therefore 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 will 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 will need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will need to pay registration and filing fees in at least 2 states if you don't buy CA property. Be sure to tell your accountant that you now need to file non-resident income tax returns in each state where you own property as well (though I believe NV has no income tax).

Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the "cause of action" arose in that state. NV generally has stronger protections for landlords than CA. California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. But these are questions you will want to ask your attorney to get a sense of which type of LLC you should form.

When you say that your involvement will be 100% passive, I'm not sure if you know the meaning of that.  Passive in the sense that it won't be "active" income for tax purposes, or passive in the sense that you have no decision making powers or authority at all?  Even if you hire a property manager who makes day-to-day decisions, if you have ultimate authority, then you are likely doing business in CA.  Also, CA does not recognize series LLCs so be careful there.  You'll want to consult an attorney for these questions and to get advice to your specific situation.

*This post is informational only and is not to be relied upon. Readers are advised to seek professional advice. This post does not create an attorney-client or CPA-client relationship.

@Neal O. It's difficult but not impossible. I've seen it done before with the bank loaning to the LLC so long as there were personal guarantees from the members. You also could consider tenants in common with a TIC agreement, and then just carry heavy liability insurance.

*This post does not create an attorney-client or CPA-client relationship.   Readers are advised to seek professional advice.

@Nic DeAngelo

Hey Nic,

What kind of attorney are you looking for - asset protection, tax, contract review, estate planning, landlord/tenant, litigation...?  Some attorneys have different areas of specialty and a lot of areas of law sort of touch with real estate.

@Iris Hou

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.

Any lawsuits would 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). But, an LLC will not limit you from liability in total. You can still lose your investment in the LLC. If you're going the umbrella insurance route, make sure 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 would 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. If you create an LLC, you will need a business account.

You also want to look at whether a pass-through entity helps your bottom line and your taxes. There is a new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies. You should still be able to get this even if the properties are not in an LLC, if you qualify.

If you haven't already, you also will want to have an estate plan drafted and in order.

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.

@Chris Taylor

Depending on the amount of income the LLC earns, the LLC could be subject to more than $800. The fee starts at income levels of $250k. See page 2 for the amounts

https://www.ftb.ca.gov/forms/misc/3556.pdf

*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 are advised to seek professional advice.

@Justin Shie

That answer depends on a lot of things.  If you just go in as co-owners, you will likely be treated as a joint venture, which is treated as a general partnership.  General partnerships have unlimited liability so you will probably not have protection from creditors or tenants if you go that route.  However, you also save yourself $800 a year since GPs in CA are not subject to the $800 minimum.

If you are "doing business" in California, any limited liability entity such as an LLC or LP will be subject to a minimum of $800 a year to California. Doing business is broader than where the property is located or if you hire a property manager, so if you are making managerial decisions from California, chances are you are doing business in California. This means that if you create an out of state (like Missouri) LLC or entity, you will have to register it as a "foreign" entity in California and pay CA entity taxes. The same would likely be true if you formed a CA-LLC and then did business in Missouri as a foreign entity there.

If you are going to go the joint venture route, you may want to think about a co-ownership agreement.  What decisions require unanimous approval and which can one person give approval for?  What if one person wants to sell and the other doesn't?  Etc.  Having a formal operating agreement or just written general understanding goes a long way.

*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 are advised to seek professional advice.

@Kris Hamilton

I can give you local CPA names in San Diego if you want.  Shoot me a PM if so.

@Keith Tidwell

Welcome to BP!  Good luck at getting started.  I think you'll find there are tons of resources on this website and several people willing to help.  The nerd in me wants to warn you not to forget an estate plan if you don't have one already.  California probate is very expensive and time consuming, and becomes all the more important with a young child.

*This post does not create an attorney-client or CPA-client relationship.  Readers are advised to seek professional advice.

@Denise Roman

I think you'll want to talk to a professional about this who is familiar with your situation and all its details. I only know very little so can't tell you whether you need to register in CA as a foreign LLC but I think it's worth looking into. You just said you and your husband will be managers of the LLC... there's a difference between managing the property and managing the LLC.

Check out Example 1 on page 4 here for some clarification:

https://www.ftb.ca.gov/forms/misc/3556.pdf

*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 are advised to seek professional help.

@Denise Roman

If you're managing the LLC from California, the FTB deems you to be ‘doing business' in CA. That requires you to register in CA as a foreign LLC and pay the $800 annual fee. Talk to your CPA or attorney about it.

* this post does not create an attorney-client or cpa-client relationship. The information contained in my post is not to be relied upon. Readers are advised to seek professional advice.