All Forum Posts by: Katie L.

@Li Tolentino

I don't know the full situation here and there are several different ways you can go so I'll refrain from giving advice but if you are going to be managing the entity from CA, you will likely be "doing business" in CA, and therefore will likely be subject to the $800 minimum tax and need to file as a foreign LLC in CA if you form it elsewhere.

If you will be needing loans, it will be much harder to get one loaned to the LLC but not impossible. Be careful of triggering due on sale clauses if you receive funding as an individual and then transfer it to the LLC.

If you have the LLC formed and don't find a property right away you will still need to file a tax return but it won't have much on it. You will also need to pay the $800 minimum tax to CA, if you're subject to that.

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

@Jason S. If you are a resident of CA and are investing in CA, is there a reason you are considering another state? If you register in another state, you will have to file as a foreign LLC in CA since you will be doing business in CA. You will owe the $800 minimum tax to CA whether you register in CA or out of state. Maybe skip the hassle of having to register in another state and just create a CA LLC? I don't know all the facts here or your full situation so I will refrain from giving my opinion but seems that would be the clear-cut answer based on your one-line post. Not sure what city in CA you live in, but if you need referrals for attorneys or accountants, let me know.

*This post is not legal advice and is not to be relied upon.  Readers are advised to seek professional advice.  The post does not create an attorney-client nor CPA-client relationship.

@Michael Batshon

If you buy rental property in NV where there is no state income tax, the rental income earned from that state would be sourced to NV and then you would need to file an income tax return for that state and pay taxes on just the rental income sourced to the rental property located in that state.  Since you are a California resident, you are taxed on ALL your income in California, no matter where earned or sourced, and then you get an offsetting tax credit for any taxes paid to other states.  Since Nevada has no income tax.... you don't pay any income taxes to NV... means you get no credit in CA for other state tax credit.  Therefore, your rental income from NV property will be fully taxable in CA.  You would have to become a NV resident to avoid CA taxing it.

Agree also that an LLC makes it worse for you because you would have to register your LLC in CA whether you create it in CA, or if you create it in NV and register it as foreign in CA. Either way you will be subject to an $800 minimum tax PLUS paying taxes at your ordinary rates on your 1040 for the pass through nature of the rental income. There may be other reasons to create an LLC but if you're purely looking at tax effects, you will pay more with an LLC.

Perhaps look into the section 199A pass through deduction that is brand new to see if you can get a tax break from that.

*This post does not constitute legal advice 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.

@Eduardo Zepeda By joint venture, do you mean essentially a partnership agreement?  You may want to consider forming a limited liability entity because if you only have a contract and don't officially register as a limited liability entity of some kind in California, the default will be that you have formed a general partnership.  General partners have unlimited liability (but it does save you the $800 min tax in California).  If you have a mortgage on the property, be careful about triggering due on sale clauses by transferring it into an entity.  You'll also want to be careful how you take title as joint tenants or tenants in common, which have some pretty big legal differences.

*This post does not constitute legal advice 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.

@Steve VanKast

Can you see if there is a deed of trust on the property and the original amount of the deed of trust?  Wouldn't tell you how much has been paid against it, but at least you'd have an idea of how much is the max that could be outstanding.  If you're in California, there is an exception for probate for estates worth less than $150k.  Not sure how much the house is worth but if it's in CA, likely worth more than that, so likely a probate would be needed before the daughter or anyone could take title to the property from the decedent (unless held in joint tenancy).  Sometimes a title company is willing to look into these things for free for you, but I certainly wouldn't purchase or do any quit claim deeds without getting title insurance.

*This post is not to be relied upon and does not constitute legal advice.  Readers are advised to seek professional advice.  This post does not create an attorney-client nor a CPA-client relationship.

@Colin L. I don't know all the facts here so I'll refrain from actually giving advice but you will want to have something documented and look into maybe an assumption agreement, so long as it is not precluded in your original loan documentation.  If this is from a family member, maybe they will not enforce any due on sale provisions or choose to waive enforcement of any sort of provisions restricting transfers, assumptions, assignments, etc.  You'll want to ensure you keep title clear and not mess up anything in the transfer which is why I asked if a deed of trust was officially recorded in the County so you will want to have a paper trail, even though the property will still be collateral for the loan.

*This post is not to be relied upon and does not constitute legal advice.  It does not create an attorney-client nor a CPA-client relationship.  Readers are advised to seek professional advice.

@Jared Nielsen try reaching out to @Logan Allec who is a knowledgeable CPA based out of LA. You can also reach out to @Brian Schmelzlen who is a JD-CPA combo based out of San Diego. It’s probably more important that you find a CPA knowledgable about real estate than one in your area if you’re willing to work via phone and email. If you need additional referrals, let me know. Good luck!

@Colin L. is there a deed of trust officially recorded against the property in county records?

@Elliot Freeman

It generally is not a good idea to put your personal residence in an entity. You'll want to be able to use the 121 exclusion of capital gain upon sale I presume, right? 1. The deduction of your property taxes is tied to ownership. If your LLC does not own the property for which the property taxes are due, it cannot deduct the expenses. You can create an LLC to collect rents which basically acts as a management company but that will just have the effect of reporting the rents on Schedule E, same as before. 2. Yes, that would be dishonest and borderline criminal tax evasion. 3. You can only take deductions in the LLC from the point in time in which the LLC pays the expenses and is formed. If it smells fishy, it probably is fishy. The IRS is NOT something you want to mess with. Kudos for thinking creatively, but time to bite the big one and join the rest of Californians taking a hit on the $10k cap on state and property taxes. Might want to ensure you increased your withholding/estimated payments accordingly to avoid underpayment penalties. Try increasing your charitable deductions or pay more mortgage interest if you want to keep your itemized deductions at a similar rate to prior years.

*This information is not to be relied upon.  It does not create an attorney-client nor a CPA-client relationship.  Readers are advised to seek professional advice.

@Ferryawaty Effendi

What kinds of actions do you anticipate people filing against you? Contract? Tort? If you're managing from California, you will likely have to register in California and pay the $800 minimum tax no matter where you form your LLC.