All Forum Posts by: Katie L.

@Steven Nguyen

If you're concerned about estate taxes, I highly recommend that you sit down with an estate planner to go into your options to reduce estate taxes.  There are a ton of ways that you can do so, but they will be highly personal to your estate, your assets, and your goals.  The estate tax exemption is currently scheduled to increase until 2026, at which time it reverts back to its lower value prior to the Tax Cuts and Jobs Act.  President-Elect Biden has proposed reducing the exemption, possibly sooner than 2026, but that remains to be seen whether it becomes an actuality or not.

*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.

@Toni Conway

If you're a California resident, you will want to read up on probate law.  It is highly likely that you will want your living trust to be the ultimate owner of all your properties in order to avoid probate at your death in CA.  You can look into other trust structures along the way or LLCs or whatnot, but be careful not to trigger a probate at death in California, which can be very expensive and time consuming for your heirs.  Also, if you're talking about a living trust, that is generally formed in the state where you are a resident.  Asset protection trusts may be able to be formed in other states, but your overall estate plan should be in the state where you reside.

*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.

@Jessica Beard

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 likely be deemed to be "doing business" in California and therefore likely 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 likely 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 may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property.

This article goes into a lot of the considerations about whether to form an LLC or not: https://www.mmpph.com/wp-content/uploads/2019/04/May-2019-newsletter.pdf

Be sure to tell your accountant that you may 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. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

*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.

@Luis Barcenas

I know a bunch of CPAs in So Cal, mostly in San Diego.  Not sure where you're located.  Let me know if you want referrals.  Agreed that there are many talented CPAs on BP that could assist.  Just be sure whoever you work with has experience and knowledge about California, which tends to be more complicated and involved than most other state tax returns.  Given that you are a CA resident, your CA return will be more complicated than a non-resident California return.

*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.

@Kyle Wilson

You're definitely wise to have a written agreement before you go too far down the road of working with a partner. Some food for thought is that general partnerships have unlimited liability, and limited partnerships need a general partner who has unlimited liability. If you're looking to have a fairly simple structure with limited liability, you may want to look into the LLC option. Also, you may want to look into the tax consequences of a sale/distribution of the property differences in an LLC versus S-corp.

*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.

@Henry Valle

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 likely be deemed to be "doing business" in California and therefore likely 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 likely 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 may 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.

This article goes into a lot of the considerations about whether to form an LLC or not: https://www.mmpph.com/wp-content/uploads/2019/04/May-2019-newsletter.pdf

Be sure to tell your accountant that you may 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. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

*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.

@Sarah Picha

I know a bunch of great CPAs in San Diego.  I'll send you a private message.

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

@Alice Chen

If you want to use the parent-child exclusion to pass property to a child without reassessment (there are some exceptions provided for in Prop 19), I would recommend that you contact an attorney right away to plan for transfers or gifts or some kind before the February implementation date.  Getting personalized advice for your situation is essential.

@Kyle J. I agree that naming children as successor trustees alone is not sufficient to avoid reassessment.  The Assessors office often asks for a copy of the trust when looking at the parent-child, and paperwork needs to be submitted to record the death of the trustee of the trust to keep a clean chain of title, which often includes a death certificate.

*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.

@David Antunes

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.

This article goes into a lot of the considerations about whether to form an LLC or not: https://www.mmpph.com/wp-content/uploads/2019/04/May-2019-newsletter.pdf

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.

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.

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.

@Sarah Dudley

You will definitely want to look into whether the VA loan can be held on a rental property, and further yet, in an LLC. You also may want to look into IRC 121, which allows for exclusion of capital gain upon sale of a primary residence if you owned it for 2 of the last 5 years. If you plan to sell within the next 3 years, you may want to look into that as well. There are many things to weigh when deciding if an LLC is necessary for your rental property(ies).

*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.