LIMITING YOUR LIABILITY Due to all the potential for liability when owning rental income property, it’s critically important to set up a proper legal structure for your property. A limited liability company (LLC) can be a great option for owning rental property because it provides personal liability protection for the owners (members) of the LLC. This means that if something goes wrong with the property or a tenant sues, the members of the LLC will not be personally liable beyond the amount of their investment in the company. Additionally, LLCs provide flexibility in terms of taxation. They can be taxed as a pass-through entity, which means that the profits and losses of the LLC flow through to the members’ personal tax returns, avoiding double taxation. Alternatively, an LLC can elect to be taxed as a corporation if that is more advantageous for the members. To set up an LLC for rental property, you will need to file articles of organization with your state’s Secretary of State office and pay the associated fees. You will also need to create an operating agreement that outlines the rules and procedures for running the LLC, including how profits and losses will be allocated among the members. It’s important to consult with a lawyer and an accountant before setting up an LLC to ensure that you understand all the legal and tax implications and make sure an LLC is the right choice for your specific situation.
IT’S CRITICALLY IMPORTANT TO SET UP A PROPER LEGAL STRUCTURE FOR YOUR PROPERTY.
Bradley Barth is a partner and Supervising Attorney of the firm’s Transactional and Estate Planning Department encompassing business formations and transactional matters, estate planning, domestic and offshore asset protection, probate, trust administration, tax and real estate law. He views his role as a trusted and long-term advocate of asset protection planning in helping his clients achieve and protect their financial goals and lifetime accomplishments. BRADLEY BARTH, ESQ. Partner BarthCalderon, LLP (714) 704-4828 ext. 114 For a complimentary planning assessment contact paul@barthattorneys.com
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