Investment Properties: Should I own it or put it in an LLC?
I am about to purchase a rental property, should my wife and I own it, or should it be in the name of an LLC?
Anyone with a rental or investment property should seriously consider transferring the property(ies) to an LLC. Whether they are married, have partners or own the property themselves.
This is the cheapest form of liability insurance you will find (but make sure you still have regular liability insurance).
If possible, set up the LLC before you take title of the new property. If that’s not possible, set up the LLC as soon as you can and then quickly complete a Quit Claim deed to transfer the property from husband and wife (owners) to the LLC. This is especially important in the State of Vermont, so you can avoid paying a second conveyance tax!
Once you have the LLC in place, the yearly cost is around $100 for filing the annual report.
If ever someone is injured or suffers some form loss that could be attributed to your property and become the basis of a lawsuit against you, the LLC would protect you.
The only one who could be sued is the owner of the property which is the LLC and you and your other assets would be protected from the lawsuit or any judgment.
As I stated in my previous blog the are several advantages to using an LLC vs owning the property outright.
Other benefits of LLCs are:
Limited Personal Liability: Only the LLC is liable for the debts and liabilities incurred by the business or investment property— not the members(“owners”). The members liability is limited to the personal interest they have invested in the LLC thus the personal assets of the individual member are protected because they are separate from the LLC.
Taxation: The LLC typically does not pay taxes for itself. Instead, the net income/loss is "passed through" to the personal income of the owner(s)/member(s), and is simply taxed as personal income or loss.
Lack of Ownership Restrictions: The LLC does not have any residency or citizenship ownership restrictions, which allows foreign nationals to have ownership in an LLC, if desired. In addition, a corporation or another LLC may have an ownership interest in the LLC
Flexible Tax Status: LLC can choose how it is treated as a taxable entity. An LLC is, by default, federally taxed as a partnership (in the case of a multi-member LLC) or as a sole proprietor (in the case of a single member LLC or in some cases husband and wife filing a joint return.
Easy Compliance Requirements: LLCs enjoy limited state mandated annual filing requirements and ongoing formalities. LLC’s are not required to have an annual meeting of directors and shareholders, adopt bylaws, and keep minutes of all meetings and all formal corporate resolutions. The LLC members may hold meetings and document the meetings whenever they wish.