LLC for income property

[Jeongmin J.]

Hi,

is it common to set up LLC for income property in CA to protect from lawsuit despite $800/yr tax?

If it is so, how long does it take? Is it too late if I do after my offer is accepted?

If you have recommendation for real estate attorney, let me know. Thanks.

[Katie L.]

@Jeongmin J.

There are several considerations that can go into the analysis of whether you need an LLC or whether a large insurance policy will suffice. Will depend on several factors like the type of property, type of tenants, your risk tolerance, other assets you own, your estate planning, laws where the property is located, etc.

An LLC is a good idea if you're worried about liability in that as @Christopher Phillips said, any lawsuits would be limited to the assets of the LLC and not your personal assets (assuming you run the LLC appropriately and the corporate veil is not pierced).  But, an LLC will not limit you from liability in total.  You can still lose your investment in the LLC.

If you have put in an offer on a property, it is not too late to put the property into an LLC. Finish out escrow and then you can transfer the property into the LLC. The value of the property you contribute to the company will become your basis in the company and from that point forward the entity will own the property and not you. And you should treat it as such (separate bank accounts, contracts, insurance, etc.). The LLC will be a pass-through entity and all items of income will be reported on your personal tax return, but you still should keep separate books for the entity.

You also want to look at whether a pass-through entity helps your bottom line and your taxes.  There is a new 20% pass through deduction you may qualify for that could help you, but not everyone qualifies.

These are all things you will want to discuss with your attorney and CPA.  If you need references for either of them in San Diego, or I have an accountant in LA, let me know, but I can't say I know too many of them up north.

*This post does not create an attorney-client relationship or CPA-client relationship.  Readers are advised to seek professional advice.