Where to form an Llc?

[Michael Contreras]

Hello,

First post here, and total newbie. My wife and are in the process of closing our first investment property in the Lake Tahoe Area (California side)

We live in California and would like advice in which state we should open up an LLC and and put title under. After reading Loopholes in real estate by Garrett Sutton, he states the many advantages of forming an LLC in Nevada over states like CA. This will be the first of hopefully many investment properties, and would like to set the right strategy out of the gate.

The question, is there any reason why I should not form a Nevada LLC while doing business out of CA? Our one and only investment property will be in CA until until we are able to expand to other areas.

Also, should we form a separate LLC to hold title under and one to do business under?

Thanks in advance for your help and guidance!

Best,

Mike 

[Katie L.]

@Michael Contreras

California is a sort of beastly state when it comes to taxes and filings. Even if you create a non-CA LLC, if you are managing the business from California, you will be deemed to be "doing business" in California and therefore subject to CA taxes. California charges a minimum tax of $800 a year per LLC, and more if you have gross receipts in excess of $250k. So, if you create an LLC in another state, you will need to register it as a foreign LLC in California. Though, this process will be the same for the other state (if you created a CA LLC you will need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will need to pay registration and filing fees in at least 2 states if you don't buy CA property.

If you live in California and the property is in California, it makes good sense to just form a CA LLC rather than dealing with registering in other states. Since you will have to file in CA and pay CA taxes by virtue of living in the state already, that would likely be your simplest and most hassle-free option.

Your rental contracts will all be according to CA laws, and you likely would want any of your LLC disputes to be handled in a CA court as well, so, also good reasons to form a CA LLC. These are things you can discuss with your CPA and attorney to get personalized advice for your situation.

*This post is informational only and is not to be relied upon. Readers are advised to seek professional advice. This post does not create an attorney-client or CPA-client relationship.