All Forum Posts by: Katie L.

@Vincent C.

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Your decision 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. California does not recognize series LLCs so each individual LLC would cost you $800 in California if you were to go thy route.

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.

Also, if you do not have an estate plan yet, you will likely want to get your living trust completed and other ancillary documents such as a Will and power of attorney, etc. In California, probate is a huge hassle and decedents are subject to probate at pretty low dollar values that having a family trust once you own property is almost essential for planning and peace of mind.

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.

@Jason Wu

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. As you say, a DST is another option. Your decision 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. California does not recognize series LLCs so each individual LLC would cost you $800 in California.

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, but you will want to ensure the DST does qualify you for the deduction.

With regard to getting your name on title, you will want to talk to an estate planning or real estate attorney about this.  If you want your name on the deed then you will need to discuss such things as how to hold title and whether it causes other issues such as property tax reassessment.  There's other questions as well about whether you made a gift to your partner when you gave him the money and then whether it would be a gift back, or whether you documented the loan and your interest in the property and whatnot.  If you're going to hold title jointly and not in an entity, you may want to consider something like a tenants in common agreement that governs your rights as owners and who can transfer or sell or encumber the property and who is liable for the mortgage, etc.

Also, if you do not have an estate plan yet, you will likely want to get your living trust completed and other ancillary documents such as a Will and power of attorney, etc.  In California, probate is a huge hassle and decedents are subject to probate at pretty low dollar values that having a family trust once you own property is almost essential for planning and peace of mind.

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.

@Yong Park

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). You'll want to get an attorney to draft the documents for you to form the entity and the operating agreement, and you can ask your questions about agents and whatnot to him/her. Good luck!

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

@Yong Park  I second what @Scott Smith mentioned that a business trust may be something you want to look into as a possible option.  I don't know all the facts of your situation, but it may merit some research.  I have a colleague in San Diego that works on these regularly if you want his contact information.

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

@Christian Paluzzi

Check with your CA CPA if he/she is familiar with Philadelphia/PA returns.  If not, then yes, you should hire a Philly-based CPA.  If he/she is, then CA is a more complex state generally for taxes and you'd be wise since you're a CA resident to have a CA-based CPA.  You'll be filing a CA resident return and only less complicated non-resident returns in PA.

@Randee Krymer

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 (for you, I suppose, people on the property), 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 (but other things you may not foresee as being likely). If you're not going to be on the property often, 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 (even if you form in another state, as you say). 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.

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.

@David Lee

Couple things you might want to look further into: parent-child exclusion in CA for property taxes, Grantor Retained Annuity Trust, intentionally defective grantor trust, gifting outright from parents to children.  Not sure as to your parents' net worth or their age but the lifetime exclusion after the recent Tax Cuts and Jobs Act is pretty high now that some of these other avenues could be good options.

*This post does not create an attorney-client or CPA-client relationship.  Readers are advised to seek professional advice from a competent professional familiar with their situation. This post is not to be relied upon.

@Jamie Garcia

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.

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. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction. 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.

Also, CA does not recognize series LLCs so be careful when seeking advice from non-CA folks since it's sort of a state heavy on regulations and rules. You also probably don't want to form the LLC yourself, it's worth hiring an attorney to have it done correctly. Good luck!

*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 and is not legal advice.

@Jared MontBlanc

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. An LLC does not pay tax per se since it is a pass through entity, so all items of income and expense would be picked up on your 1040 (assuming it's a single member LLC or it's you and your wife as members since California is a community property state). Therefore I agree the LLC does not provide you tax benefits, and in fact, costs you at least $800 per year in additional taxes, plus the costs of running an LLC and having an attorney form it for you, which is a one-time set-up cost. You also pay $70 for formation to the state and $20 every other year for a statement of information. But you need to weight that against liability protection and what insurance can provide for you.

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. This is something you will want to talk with your CPA about.

Additionally, if you don't have an estate plan in place, that's something you'll want to look into as well.  Very important in California to avoid probate which is so incredibly expensive and such a hassle.

These are all things you will want to discuss with your attorney and CPA.  It's important to speak with someone who is familiar with your own situation and can give you personalized advice.  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.

@James Peters I have several names for you in San Diego if you’re willing to work remotely. Shoot me a PM if so.