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Updated over 2 years ago, 06/03/2022
LLC or run through personal account for taxes and banking
Just purchased single, out of state, property for STR. We reside in WA. STR in Boise, ID.
As a married couple do we set up LLC or run expenses and income through our personal names? This is in regards to banking and taxes?
@Debra Johnson In regards to banking it doesn't matter if the account is in a LLC or personal. However I would have a different account if it was in your personal name to make tracking easier for taxes. So if it is just in regards to banking and taxes I would keep it all in personal and save the expense of time and money of setting up an LLC.
If you are wanting to add more properties and create a business out of this I would then change my answer, but that goes outside of what you were asking.
Hope it helps and I am sure your STR is going to crush it here in Boise!
If it was me personally, I'd just set up an LLC. Its not difficult to set up, fairly inexpensive, its a pass-through entity and protects you personally.
Hey Debra! I personally like to run all my real estate through LLC's. Especially with STR. There is a lot of traffic coming through these rentals with short stays so with that being said there is a lot more exposure to litigation. You can get a cheap LLC inside ID which is what you want to do. You can file that pretty easily online. On another note, I own a management company for short term rentals locally. Let me know if you need any advice, projections or recommendations in the area. (I live in Boise).
Quote from @Shannon Allen:
If the property is purchased in our personal names and we set up an LLC for the one property would that LLC protect our personal assets?
@Debra Johnson If you set up an LLC you must treat it like a business and it will protect assets in the business, and limit losses to the business in a lawsuit. UNLESS a judge pierces the vail. AKA you comingle funds, you don't treat it like a business and run it like an extension of your personal accounts and assets. I would recommend setting down with a lawyer and accountant to have it set up right. it will cost you a couple hundred bucks and save you a lot down the road, and give you a road map if you wish to continue to grow.
I would recommend setting up a LLC but only if you are going to do it right. But if you are just looking for simplicity in banking and taxes this isn't the easiest way, but it is IMO the best way. If you don't have the money to sit down with a lawyer block out a few afternoons and do a deep dive into learning about setting up a company, how to run a company, and more importantly how not to run a company.
I have a client that sets up a new LLC for each investment property that he buys to help with his taxes and liability issues. Then, before he puts any major money into a remodel, he refers his LLC to get a credit card to help pay for the remodel. He gets a referral bonus for the successful referral, and then the LLC gets the sign up bonus for the new account and then an additional bonus if $x is spent in the first 90 days or what ever that card requires. For example, he referred me through his Chase Sapphire Reserve card and got a 20,000 point bonus. When I got my card, I used it to pay to extend power to an acre lot I own here in Idaho. I received 100,000 points on that expenditure and if I use them on their website to book airfare, hotel or rental cars, I get a 25% bonus too!
I love this as long as you are prudent and pay off the card in full each month so you don't have obnoxious interest rates to pay! I would love to provide links to any of my cards if you would like to try this. I just used my Delta American Express cards to pay for a $27,800 well on the same property and earned $200 in flight credits and 10,000 bonus points on Delta over and above the regular bonus points!
Quote from @Chris Davidson:
@Debra Johnson In regards to banking it doesn't matter if the account is in a LLC or personal. However I would have a different account if it was in your personal name to make tracking easier for taxes. So if it is just in regards to banking and taxes I would keep it all in personal and save the expense of time and money of setting up an LLC.
If you are wanting to add more properties and create a business out of this I would then change my answer, but that goes outside of what you were asking.
Hope it helps and I am sure your STR is going to crush it here in Boise
@Chris Davidson Sort of incorrect from a technical point of view. An account in your personal name is a personal account regardless of if you are using it for business. Personal liabilities could attach to the account for instance. An account in the name of the business provides the protection of an LLC which separates personal liabilities from the business. There is just too many potential liabilities in the rental space to justify having business assets listed under personal.
Quote from @Debra Johnson:
If the property is purchased in our personal names and we set up an LLC for the one property would that LLC protect our personal assets?
@Debra Johnson The best way to structure it is to acquire the property in the name of the LLC at the start. Subsequently transferring the property to the LLC can be grounds for the lender to accelerate the note if there is any outstanding loan on the property in your personal name and not the LLC.
Quote from @Frank Greg:
Quote from @Chris Davidson:
@Debra Johnson In regards to banking it doesn't matter if the account is in a LLC or personal. However I would have a different account if it was in your personal name to make tracking easier for taxes. So if it is just in regards to banking and taxes I would keep it all in personal and save the expense of time and money of setting up an LLC.
If you are wanting to add more properties and create a business out of this I would then change my answer, but that goes outside of what you were asking.
Hope it helps and I am sure your STR is going to crush it here in Boise
@Chris Davidson Sort of incorrect from a technical point of view. An account in your personal name is a personal account regardless of if you are using it for business. Personal liabilities could attach to the account for instance. An account in the name of the business provides the protection of an LLC which separates personal liabilities from the business. There is just too many potential liabilities in the rental space to justify having business assets listed under personal.
@Frank Greg, true that in a business account is protected from personal liabilities, however if the vail is broken business liabilities are not protected from personal assets because of an llc. I agree having a company set up and running it as a business is the safest way, but the orginal question was just for easiest banking and taxes.
@Frank Greg, true that in a business account is protected from personal liabilities, however if the vail is broken business liabilities are not protected from personal assets because of an llc. I agree having a company set up and running it as a business is the safest way, but the orginal question was just for easiest banking and taxes.
@Chris Davidson But one sure way to give someone an excuse to think about piercing the corporate veil is to start mingling personal and business assets. This is a practice that almost always results in some adverse outcome.
