Converting properties to LLC

[Rudy T.]

  Hi All, 

Just like many of you, I am new to BP. I have two rental properties in California on my name and one thing on my mind is liability. What does the process look like if I want to convert the rental units to be owned by an LLC? Where can I find some more information? Is it a problem if one of the properties I have was acquired using a 1031 exchange? Any help would be appreciated!

  Thanks, 

  Rudy

[Bryan Zuetel]

@Rudy T., as the posts above have mentioned, there are pros and cons to creating an LLC to hold your investment properties in California. To answer your specific questions (but not necessarily suggesting that you should go the LLC route), the California Secretary of State actually provides a pretty good walkthrough on how to create/organize the LLC in California: http://bpd.cdn.sos.ca.gov/llc/forms/llc-1.pdf.  You will also need to consider whether you need an EIN from the IRS, a separate bank account, and insurance endorsements for the LLC.  

Your question about the 1031 exchange property is very fact-specific. However, generally, if your single-member LLC is created properly and is considered a disregarded entity for IRS and state purposes, the transfer of the 1031 replacement property into the LLC will not cause a problem for the 1031 exchange process or for capital gains consideration.