DC Resident buying a House in Maryland under an LLC

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DC Resident buying a House in Maryland under an LLC

Rene Roth
Member since 2022 · 3 posts · 2 votes

I'm a DC resident (living in a home in DC) and thinking about buying an investment property in Maryland using an LLC with two members (husband and wife) Should I register the LLC in DC or Maryland? what are the pros and cons? Also what are the potential tax consequences?

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Joe Norman
Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
4y

Buying a property in an LLC will increase your taxes and decrease your access to financing. On the other hand, it may reduce your liability but only if done properly (e.g., zero co-mingling of funds). 

My advice to most investors starting out is to purchase in your own name and get an umbrella liability policy.

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  • Joe Norman
    Property Manager · Baltimore, MD · Member since 2014 · 1k+ posts · 1k+ votes
    4y

    Buying a property in an LLC will increase your taxes and decrease your access to financing. On the other hand, it may reduce your liability but only if done properly (e.g., zero co-mingling of funds). 

    My advice to most investors starting out is to purchase in your own name and get an umbrella liability policy.

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  • Naveen Kumar
    Ashburn, VA · Member since 2017 · 85 posts · 28 votes
    4y

    If you do decide to buy in a LLC, it is a better idea to set it up in MD since your investment property will be in that state as MD will require you to file a personal property tax return each year.

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  • Account Closed
    Real Estate Agent · Baltimore, MD · Member since 2022 · 14 posts · 6 votes
    4y

    Hi @Rene Roth

    I use Maryland registered LLCs for my rental properties in the Maryland. It was the advice given to me by the Maryland real estate attorney that I work with, and his justification was the liability protection is well worth it in a litigation happy environment. I also hold an umbrella policy that covers each of my rental properties. LLCs may protect your personal assets but what you hold in that LLC is still exposed to liability risk. A lawsuit could wipe you out and, in my opinion, you should hope for the best but prepare for the worst.

    Purchasing in an LLC definitely narrows the options for financing but there are options out there. On the tax front, to my knowledge an LLC is a pass-through entity so income goes directly on your personal tax return so you will be taxed the same regardless. You will have an annual fee of $300 from the sate of MD to keep your LLC current but could be well worth it for the protection of your personal assets. But at the end of day, I'm not an attorney or CPA. The information above is just from my experience and how I understand things. Talking with attorneys and CPAs on these matters is always the best way to go. Best of luck and feel free to reach out if you want me to elaborate or if I can be of service to help you find a property!

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  • Megan Templeton
    Attorney · Birmingham, AL · Member since 2022 · 220 posts · 83 votes
    4y

    Hi there! I would recommend setting the LLC up in the state of the property - MA. This will allow you to take in state actions such as evictions easily. The compliance components and fees are MA are also relatively low so administratively its a good set up.

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  • Rene Roth
    OP
    Member since 2022 · 3 posts · 2 votes
    4y
    Quote from @Megan Templeton:

    Hi there! I would recommend setting the LLC up in the state of the property - MA. This will allow you to take in state actions such as evictions easily. The compliance components and fees are MA are also relatively low so administratively its a good set up.


    Thanks, Megan! Have you ever set up a multi-member LLC (husband/wife) on your own on LegalZoom or whatever other source? Also, any recommendations on keeping track of the finances for the LLC? like software

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  • Rene Roth
    OP
    Member since 2022 · 3 posts · 2 votes
    4y
    Quote from @Naveen Kumar:

    If you do decide to buy in a LLC, it is a better idea to set it up in MD since your investment property will be in that state as MD will require you to file a personal property tax return each year.


    have you ever set up an LLC on your own through legalzoom or whatever other source? Is it difficult?

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  • Varun C.
    Investor · Wake Forest · Member since 2021 · 17 posts · 7 votes
    4y

    Here is what I used - https://www.incfile.com/

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Rene Roth

    Doesn't really matter for asset protection comes down to annual costs. We are in VA and registered in VA because a lot cheaper than MD and we register as foreign entity in MD.

    LLC's are pass through entities so speak to your cpa - does nothing for taxes.

    Personally I think LLC's for real estate are overused as you get almost same protection with an insurance policy and have good indemnification language in your PM agreement and if you don't use a PM you just pierced your LLC protection by you being the manager.

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