All Forum Posts by: Katie L.

@Jake Keating

Are your parents also living in WA state then?  You'll want to consult with a Washington attorney then to know the state's probate requirements.  In California, a Will is not sufficient to avoid probate and the assets would need to be held in a family trust or in joint tenancy to avoid the probate process.  Your parents could give a specific bequest of the house in their trust to you and then split the remainder of their assets among whoever they want.  They also could add you to title with themselves as joint tenants but you will likely miss out on a stepped-up basis that you could receive via inheritance.  You also need to be cognizant of the gift tax implications here - if you gave your parents $100k that wasn't a loan - you made a taxable gift and should have filed a gift tax return.  If your parents add you to the title as a joint tenant, they're making a taxable gift too and need to file a gift tax return.  It's unlikely that any actual tax would be due because of the increased $11.18 million lifetime exclusion, but you're supposed to track the exemption used and technically have a filing requirement.

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

@Steven C. What city in CA?  I have names in San Diego.

@Chris Williamson

I work with several accountants in San Diego who have real estate specialties.  I've never asked them directly if they work with self-directed IRAs but shoot me a message if you want their names and you can ask them, and at least you know they are familiar with real estate investors as a starting point.

@Ann Nguyen

I have names for you in San Diego if you’re willing to work remotely.

@Lynn T.

California does not recognize series LLCs.  If you are managing the LLCs from California and "doing business" in California, each one will need to register as "foreign" in CA and pay the $800 minimum tax and associated filing fees.  You should seek out an accountant or lawyer familiar with CA laws as CA is kind of its own beast when it comes to taxes.  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 a CPA-client relationship.

@Chingju Hu

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 one of those other states, you will need to register it as a foreign LLC in California. Though, this process will be the same for each of the states (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 CA, TX, and MO, plus FL if you purchase there. You can do this all with one LLC if you want. Be sure to tell your accountant that you now need to file non-resident income tax returns in each of these states as well (Texas has no income tax so you might be off the hook there, as well as Florida). 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. So even if you pick a state with stronger protections like WY or DE, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction. In that regard, maybe just go with the state where you find the best attorney to draft it for you who you trust and won't cost you too much. I would advise against forming the LLC on your own with such a complicated situation. 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.

@Ron Sohn

Congrats! I'm not following the logic on why you need 2 LLCs if you only have one property? One will hold title to the property, and what will the other one do? You mean to do it as a series LLC for anonymity? Please note that California does not recognize series LLCs. If you are managing the property from CA, then you are "doing business" in CA, requiring you to pay the $800 minimum tax for each LLC. You will need to pay this regardless of whether you have profits or a loss. Also, if you are creating a non-CA LLC, then you will need to register each as a "foreign" LLC in California. Or if you create a CA-LLC you will need to register it as foreign in the other state. So this subjects you to paying LLC fees and filings in three states now, when you could just do two. With only one property, a lot of people choose against the LLC and just get a good insurance policy for protection, but that decision is up to you and depends on a lot of factors like your personal financial situation, risk tolerance, type of property, condition of property, abilities of property manager, etc. Any profits for the LLC would be reported on your own 1040 (if you are the only member). You'll need to talk with your accountant about whether you will be eligible to deduct any losses from the property or whether they will be suspended. Specifically maybe ask about the "mom and pop" rule for passive losses to see if you will qualify to deduct any possible losses. You'll also want to ask if your accountant is familiar with the Indiana income tax return as you now will need to file a nonresident return in Indiana. Also ask about the need to make estimated payments since if you have a W-2 job, your withholding may or may not be enough to cover your real estate income.

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

@Daniel Spaizman

I have several names of locals I can send you. I’ll shoot you a PM. You can try reaching out to @Brian Schmelzlen who is an excellent choice in San Diego, though you may find CPAs a bit busy at the moment with the upcoming 9/15 and 10/15 tax deadlines.

@Jorge Barboza Jr.

You could do this several different ways. And it depends on a lot of different variables as well. Is your partner a family member or other trusted long-time friend? Will the properties have mortgages? Will you be performing equal duties? Putting in equal amounts of money? Are you worried about the stability of your partner in terms of marriage or finances? What about liability concerns from tenants or creditors?

Having a formal entity allows you to have a written agreement laying out all the decisions both of you will make and the roles you will play with regard to the properties. It will describe which actions will need both of your approvals and which actions one partner can do on behalf of the entity. For instance, do you want to restrict your partner from being able to encumber the properties? Is there a dollar amount of expenditures you want to require unanimous approval? You could also draft a sort of tenants in common agreement if you wanted to avoid a formal entity, but that gives you no liability protection. If you are going to have debts attached to the property, you will want to make sure to watch out for any due on transfer clauses, or be ready to personally guarantee any loans taken out in the name of the entity. Will you also be using the entity as a property manager for other properties or want an entity name for tenants to be able to write rent checks out to?

If one partner puts in more money than the other, you could change ownership interests, you could treat it as a loan, you could reduce income/profits from the non-contributing partner until the contributing partner is paid, etc.

You will want to discuss with each other who will be doing what management functions and whether that is worth anything to you both. If only one person is doing all the work, do they deserve a management fee before profits are split? How will you calculate such a fee?

What if one partner wants out of the partnership? Can they transfer it or sell it? Will you require the other partner to buy him out? What about a first right of refusal? Can it be transferred to the partner's spouse (especially with California being a community property state)? What if one partner gets divorced or married? Can children have an ownership stake? What if one goes bankrupt?

What about in the event of disagreements? What decisions will require unanimous approval versus one partner can act? Will you require expenditures over a certain dollar amount to be approved by both partners?

Also just a caution that if one partner is putting in sweat equity/services for his interest, the accounting for it gets fairly complex.

If you need lawyer or accountant names in San Diego, let me know. Good luck!

*This post does not create an attorney-client or CPA-client relationship. The information in this post is not to be relied upon and readers are advised to seek professional advice.

@Christopher A Brown @Jay N.

I have additional names for you in San Diego if you're willing to work remotely.  I second that @Brian Schmelzlen is an excellent choice for a CA-based attorney, and he's definitely on my go-to list for referrals.  My connections don't extent too much up north but I know a great firm that works with high net worth taxpayers if that fits you.  Good luck and congrats on taking the plunge!