Categories

Should I use an LLC for my rental properties?

In short, yes, you should create separate LLCs for each of your rental properties. There are four main reasons to do so: (1) LLCs limit personal liability; (2) an LLC helps keep rental properties separate from each other; (3) LLCs give the advantage of pass-through taxation; and (4) separating business and personal expenses is easy.

What is a Limited Liability Company or LLC?

LLCs are limited liability companies formed by one or more members. An LLC combines the best parts of a corporation, sole proprietorship, and partnerships into one business entity that offers flexible management structure, owner liability protection, and certain tax advantages. The main reason for creating an LLC for your rental properties is to limit your personal liability should anything go wrong and you are sued. Without an LLC, a tenant or other party who sues you as a landlord can and will attack your personal assets in order to recover for their damages. With an LLC, only the assets controlled by the LLC are at stake, and all of your personal finances are protected.

Separate Each Rental Property By Its’ Own LLC

An LLC will also help keep your rental properties separate from each other. By setting up separate LLCs for each rental property, you are basically insulating each property from liability claims from another property. Basically, if all of your rental properties are under one LLC, there is no shield protecting one property from another in a lawsuit. With different LLCs for each company, you are ensuring that a lawsuit from one property cannot affect any other properties along the way. Not only do LLCs protect your personal assets, but they also protect the assets of each property that you own.

LLCs are a Pass-through Entity for Tax Purposes

Pass-through taxation is another major benefit of creating LLCs for your rental properties. Typically, a corporation is taxed on their profits, and the owners are then taxed again when they make income from the business. With an LLC, you get the benefit of the company’s income “passing through” to you as the owner. In layman’s terms, all income made by your LLC (your rental property) will flow through to your individual income tax return. This minimalizes the amount of money taken out of your income for taxes.

The last major benefit of creating an LLC for a rental property is that you can separate your business and personal expenses. After creating an LLC through the Secretary of State, you are able to obtain a Federal Tax Identification Number which allows you to create a bank account on behalf of that LLC. This allows for the property owner to separate their personal bank account and finances from the finances of their rental property and LLC. Having a separate business bank account makes it easier to claim business expenses when it comes time to doing your taxes. Separate bank statements makes it clear which expenses are personal and which are business related.

When should I create an LLC for my rental property?

There is no “right answer” for this question, but it is easiest to do before purchasing the rental property. Creating an LLC before purchasing the rental property avoids a few major headaches such as notifying your mortgage holder that you are transferring title to an LLC, notifying tenants that their property is now owned by an LLC and updating leases, and paying title transfer fees and taxes.

Creating an LLC before purchasing the rental property is beneficial because you can buy the property under the LLC’s ownership, in which case the property deed will be in your name.

Does an umbrella insurance policy offer the same protections as an LLC?

There are many advantages to purchasing an umbrella coverage insurance policy. However, there is always a limit to the policy. If your umbrella policy only covers $500,000, and you are sued for $1 million, your personal assets are still vulnerable for the remaining balance of the lawsuit. Creating an LLC is a way more effective, and often times cheaper way of protecting your personal and business assets.

SKILLED AND EXPERIENCED LLC AND RENTAL PROPERTY ATTORNEYS

            Call a skilled and effective LLC and Rental Property Asset Protection Attorney today at 630-780-1034.  The Lawyers of Gateville Law Firm concentrate in rental property asset protection and formation of LLCs for Rental Property Owners. We assist landlords and rental property owners in the following areas:

  • - Kendall County (Aurora, Montgomery, Oswego, Joliet, Plainfield, Newark, Plano, Bristol, Boulder Hill, Minooka)
  • - Will County (Aurora, Plainfield, Naperville, Joliet, Shorewood, Channahon, Minooka, Crest Hill, Lockport, Bolingbrook, Romeoville, and Braidwood)
  • - Kane County (Geneva, St. Charles, Aurora, Montgomery, Elburn, Elgin, Sugar Grove, Batavia, North Aurora and Hampshire)
  • - DuPage County (Lisle, Downers Grove, Glen Ellyn, Warrenville, Winfield, Naperville, Wheaton, Lombard, West Chicago, Elmhurst and Carol Stream)
  • - DeKalb County (Sandwich, Somonauk, DeKalb, Sycamore, Genoa, Cortland, Kirkland, Kingston, Hinckley, Waterman, and Shabbona)
  • - Grundy County (Morris, Minooka, Channahon, Mazon, Gardner, Coal City, South Wilmington, Carbon Hill, Verona, South Wilmington, and Braceville)

Helpful? Share with others.