Owning rental property in a limited liability company (“LLC”) can be a great idea. The best part of owning your rental property in an LLC is that it limits your liability. For instance, if someone is hurt on the property, then they would sue the owner, which is the LLC. Their recovery would be limited to the assets of the LLC and it is unlikely they would be able to sue you individually unless they were able to pierce the corporate veil.
If you plan to own your rental property in an LLC, then the following are eight tips for you to consider:
Name of landlord on lease – Make sure the name of the landlord on any lease is the name of your LLC. For any leases that have your individual name as the landlord, they can be amended to change the name of the landlord to the LLC.
Federal Tax Identification Number (TIN) – After forming your LLC, file for a TIN with the IRS. You will need a TIN to open a bank account for the LLC.
Bank account – Set up a separate bank account for your LLC to keep rental income separate from your personal account.
Tenant pays LLC – Make sure that your tenant is aware that your LLC is the landlord and your tenant needs to make rent checks payable to your LLC.
Insurance – Update your property/casualty insurance to ensure that the property is insured in the name of your LLC.
Title insurance – If you are transferring the property from your individual name to your LLC, speak with the title company or attorney that handled your closing to be sure that your title insurance will carry over to your LLC.
Avoid probate – You can avoid probate for your rental property in your LLC by adding a transfer on death provision to your LLC’s Operating Agreement.
Taxation – If your LLC is a single-member LLC, then it will be treated the same as a sole proprietorship for tax purposes. If your LLC has more than one member, then it will be treated as a partnership for tax purposes. In both cases, the LLC’s profits and losses pass through to the owner(s).