Do you own rental properties in California? Are you in the process of obtaining rental properties? Regardless of what stage you are in your rental investor stage, it would be best if you considered forming an LLC.
Forming an LLC for your rental properties comes with a plethora of benefits that you may or may not already be aware of. If you are curious about the steps it takes to create an LLC for your Rental Property in California; then you definitely should stick around.
This brief LLC guide will go over the many benefits of getting an LLC for your rental properties and who you can reach out to for more information.
- 1 How Do I Set Up an LLC for a Rental Property in California?
- 2 File Your Articles of Organization
- 3 Choose Your Registered Agent
- 4 Prepare an Operating Agreement
- 5 Submit Your Documents
- 6 Should I Create an LLC for My First Rental Property?
- 7 Is It Better to Buy Property Under an LLC?
- 8 How to Transfer a Property Into an LLC?
- 9 How Does Owning an LLC Affect My Taxes?
- 10 Other Benefits of an LLC Rental Property in California
- 11 Other Tax and Regulatory Requirements
- 12 Who Can File My Rental LLC for Me?
- 13 File an LLC for Your Rental Property in California
- 14 Learn More
How Do I Set Up an LLC for a Rental Property in California?
When setting up your LLC for a rental property in California, you must first come up with a unique name for your business. The name you select must not be the same as or similar to an already existing name listed in the California Secretary of State records.
If you already have a name in mind, you will want to make sure it is available before submitting your application. When creating your business, make sure that you put “LLC” or “Limited Liability Corporation” after your business name. For example, if your business name is Lucy’s Salon Studios, it will need to look like “Lucy’s Salon Studio LLC.”
File Your Articles of Organization
To create your California LLC, you will need to file your Articles of Organization. Your Articles of Organization in California is the LLC-1 form. There is some information you must gather before you submit these documents.
Information needed for your Articles of Organization:
- LLC name
- Purpose of your business
- Information on how you will manage your LLC
- Names of the LLC’s members
- The physical business address
- Name and address of your registered agent
You have the option to complete this form on your own online, or you can have someone prepare these forms on your behalf. Keep in mind that if you employ a company to help form your documents for you, they will most likely charge you a fee.
Choose Your Registered Agent
As mentioned earlier, you will need to include a registered agent for your business. Every California LLC must have a registered agent who agrees to accept legal papers on behalf of the LLC in the event that the company faces a lawsuit.
Your registered agent must also reside in California, and their physical address must be listed on the Articles of Organization. P.O. Boxes are not accepted. The registered agent can be a member listed under the LLC, but they do not need to be directly affiliated with your LLC.
Manager Management vs. Member Management
Most smaller multi-member LLCs prefer to be managed by their members, but some LLCs appoint a manager or a small group of managers to handle the LLC. The manager or group of managers act like a board of directors who oversee the corporation with manager management. Managers will vote on critical issues such as purchasing real estate, taking out a loan, or changing important strategic plans.
Prepare an Operating Agreement
In California, you are not required to create an operating agreement for your business, but it is highly recommended. The purpose of an operating agreement is to outline your business’ financial and functional decisions, including provisions, rules, and regulations. This document helps to govern the internal operations of your business in a way that suits the needs of the business owners.
Submit Your Documents
Once you have all your documents ready to go, you can submit them online at the California’s Secretary of State website. You have the option to mail in your documents, but filing online is easier and faster. The fee for filing your LLC is $70.
Should I Create an LLC for My First Rental Property?
Creating an LLC is an excellent idea, especially if this is for your first rental property. When you form an LLC for your rental property, you limit your own personal liability.
Whether you plan on creating your LLC for a business or a rental property, if someone tries to sue you, they cannot go after your personal property, such as your car or your home. This means that if someone does file a lawsuit, only your assets under the asset are at stake.
Is It Better to Buy Property Under an LLC?
If you plan on purchasing rental properties, it is best to have your LLC first. When you purchase a property without an LLC, you will have to transfer the title to your LLC.
Getting an LLC to buy any property helps you avoid paying any additional costs if your mortgage lender decides to close the loan in your name. You also will avoid having to pay a title transfer tax.
How to Transfer a Property Into an LLC?
If you already purchased the property under your personal name and you want to transfer it to your LLC, you will need to draft a Quick Claim Deed and file it with your local county clerk. A Quit Claim Deed allows you to edit any information on a previously recorded deed.
Important Title Transfer Information
If you decide to transfer a real estate title to your LLC, you should reach out to your lender. If your name is on the deed instead of the LLC, it can compromise the foreclosure right for your legal tender.
Before you transfer the title, you will need to ensure that it is okay with your lender. Even if your lender is okay with the transfer, make sure that you check out the contingencies. Transferring the title may increase your interest rate on the loan.
How Does Owning an LLC Affect My Taxes?
Owning an LLC comes with significant tax benefits when you put your rental property in an LLC. This tax benefit is called pass-through taxation. This type of taxation allows any losses or profits to pass through your business to your income tax return and is taxed at a personal rate.
You have the opportunity to deduct up to 20% of your LLC’s net income from your income taxes, which can amount to financial savings on your income taxes.
Ensure that you reach out to your accountant or a licensed tax professional for more information. It is best to have a professional handle your rental LLC tax information to avoid making any mistakes when submitting your taxes.
Other Benefits of an LLC Rental Property in California
There are many different benefits that come with forming an LLC for your rental property, in addition to tax benefits. For example, you have the option to create several different LLCs for your rental properties.
When you form an LLC for each of your properties, you reduce your liability.
This means that if one person sues one of your LLCs, the assets under that listed LLC are at stake, but not your other properties. By forming a separate LLC for your rental properties, you can separate and safeguard each of your properties.
When you create your LLC for your rental properties, make sure you sign up for a business banking account. Not only does this help your tax professional when it comes to tax time, but it helps you separate your personal costs from your business expenses.
Before registering your LLC for a business bank account, you will need to obtain an EIN. An EIN or Employer Identification Number is like a social security number for your business.
Creating a bank account for your business makes it easier to claim your business deductions and expenses. A separate account clarifies which costs relate to your rental property.
Additional California LLC Information
It is important to note that every state has different requirements for filing and maintaining your LLC. For example, in California, you must file a statement of information with the Secretary of State within 90 days of filing your articles of organization.
A statement of information is filed to explain your company’s activities over the year. This information is most important to parties interested in your company. The statement of information should include the financial performance of your company and the activities of your company.
What is included on the statement of information:
- Your LLC’s name and Secretary of State file number
- Name and address of your registered agent
- Street address of your principal executive office
- LLC mailing address
- Name and complete business or physical address of your members
- Valid email for your LLC
- LLC’s main business activity
Each state is different when it comes to when you need to file this report. Some states only require you to file this document once every year. In California, you must file this report once every two years.
Pay Your California State Tax Obligations
All LLCs organized, conducting business, or registered in California must pay taxes to the California Franchise Tax Board.
All LLCs that do business in California must pay an annual franchise tax of at least $800. If your LLC generates more than $250,000 in net income, you must pay an additional fee based on your LLCs total annual income.
Other Tax and Regulatory Requirements
There are other taxes and regulatory requirements that you must comply with. For example, if your LLC has more than one member, you will need to get an EIN even if you do not have any employees.
If you form a one-member LLC, you will need to obtain an EIN only if you have employees or elect to have your LLC taxed as a corporation. There is no filing fee for obtaining an EIN.
Sales and Employer Taxes
You will need to register with the appropriate California taxing authority in some cases. For example, if you have employees or are selling goods and collecting sales tax, you will need to make sure that you register your LLC with the proper taxing authorities. Your accountant or tax professional can help you sort this out if needed.
An example of a taxing authority you may need to register your business is the California State Board of Equalization. If you plan on selling goods and collecting sales tax, you will need to register with them. You can do so online or go in person at a Board of Equalization office.
Who Can File My Rental LLC for Me?
As mentioned above, you can reach out to tax professionals for assistance with filing your LLC. Filing your documents can be an overwhelming task, so it may be best to employ a tax professional to take care of that for you. Of course, you may know of the steps you need to take to form and maintain your LLC, but when you’re running a business or starting one, there are other tasks that need your attention.
If you want the state to file your paperwork promptly, you will want to make sure that your documents are free of error. You can reach out to a professional to take care of that task to do that.
They will ensure that your paperwork is in order before sending it off to the Secretary of State. The processing time varies for when you will receive your LLC paperwork back.
On average, it can take a couple of weeks before you hear anything back. When you hire a professional to handle the paperwork for you, it reduces the chances of your LLC application receiving a denial.
File an LLC for Your Rental Property in California
Whether you are starting your journey of obtaining rental properties for your LLC or if you already have a few rental properties in your name, you can still reap the benefits of getting an LLC for your business. Not only does this help when it comes to tax time, but it also protects and secures your own personal assets.
The last thing you want is to lose your home, car, and rental property due to a lawsuit. If you are ready to start forming your LLC or need help, Check Out Rocket Lawyer for Free Click Here