CA Resident Looking to Invest out of State

[Sunny A.]

Hello,

I’m looking to invest out of state. Below is a list of questions I’d like to get advice on to determine how best to proceed. Would appreciate any feedback!

1. Should I incorporate in the state I will own and rent the property in as a single member LLC? Or should I operate as a sole proprietor and get an umbrella insurance policy instead?

2. Will I have to additionally pay CA franchise tax of $800 / year?

3. Should the property deed be under my name, or if incorporating under the LLC?

4. I would like to do a cash out refi after seasoning the property (BRRR).

a. Should I own the loan in my name, or if incorporating, in the LLC's name?

b. Can I count refi mortgage interest as a business expense?

c. Are there any limits on the interest deductions (e.g., due to new Trump tax plan)?

5. Should I deduct depreciation?

6. Can I treat property tax as a business expense? Is there any limit due to new Trump tax plan?

7. Will I be double-taxed on rental income by CA and by the state where I own the rental property?

8. Anyone know a good lawyer and CPA in the Bay Area who would be able to help me with:

a. Forming an LLC if necessary

b. Navigating contracts with out of state property purchases and out of state property management

c. Accounting and filing taxes

Many thanks!

[Matt K.]

@Sunny A.

Hopefully this helps some, I can tell you that OOS isn't that hard or much different than buying locally when it comes to the process. What's time consuming and hard is understanding the market like you live there.... A good PM/Realtor/Lender can make a HUGE difference in your progress and ability to find deals.

1. Should I incorporate in the state I will own and rent the property in as a single member LLC? Or should I operate as a sole proprietor and get an umbrella insurance policy instead? Unless you have extremely high net worth or some special circumstance... get the umbrella (just my opinion).

2. Will I have to additionally pay CA franchise tax of $800 / year? Yes, if you do LLC

3. Should the property deed be under my name, or if incorporating under the LLC? Easier under your name.

4. I would like to do a cash out refi after seasoning the property (BRRR).

a. Should I own the loan in my name, or if incorporating, in the LLC's name? Easier under your name... but cash outs eat up a lot of equity if you didn't get good appreciation.

b. Can I count refi mortgage interest as a business expense?

c. Are there any limits on the interest deductions (e.g., due to new Trump tax plan)?

5. Should I deduct depreciation?

6. Can I treat property tax as a business expense? Is there any limit due to new Trump tax plan?

7. Will I be double-taxed on rental income by CA and by the state where I own the rental property?

8. Anyone know a good lawyer and CPA in the Bay Area who would be able to help me with:

a. Forming an LLC if necessary

b. Navigating contracts with out of state property purchases and out of state property management This is pretty easy and straight forward..... unlikely you'd need a lawyer unless you went really complex.

c. Accounting and filing taxes