All Forum Posts by: Katie L.

@Allen Tracy

I know a lot of CPAs in San Diego if that's an okay distance for you.  I grew up near Chatsworth but don't know any professionals out that way.  I would agree that you would be best served by either a CA-based CPA or one who is well versed in CA laws.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

@Shamar Seaforth

I know a handful of CPAs in San Diego if you're interested.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

@Maksym Chernov

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.

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're going the umbrella insurance route, make sure it will cover you for several things including just the routine slip and fall (like mold or earthquake). You'll also want to ensure you have a good property manager to look after the upkeep of the property if you are not there to notice anything deteriorating or which may need attention.

Creating an LLC in California would cost you a minimum tax of $800 every year. You would have ongoing filing requirements with the State and would need to keep business records and documentation.

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. You should still be able to get this even if the properties are not in an LLC, if you qualify.

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, let me know.

*This post does not create an attorney-client or CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

@Account Closed

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 likely be deemed to be "doing business" in California and therefore likely 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 likely 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 may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property.

This article goes into a lot of the considerations about whether to form an LLC or not: https://www.mmpph.com/wp-content/uploads/2019/04/May-2019-newsletter.pdf

Be sure to tell your accountant that you may now need to file non-resident income tax returns in each state where you own property as well. Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction.

California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

*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.

@Leslie Hsia

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 likely be deemed to be "doing business" in California and therefore likely 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 likely 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 may need to register it as a foreign LLC in the state in which you are doing business/holding property). This means that you will probably need to pay registration and filing fees in at least 2 states if you don't buy CA property.

This article goes into a lot of the considerations about whether to form an LLC or not: https://www.mmpph.com/wp-content/uploads/2019/04/May-2019-newsletter.pdf

Be sure to tell your accountant that you may now need to file non-resident income tax returns in each state where you own property as well. Most likely the state where the property is located is where lawsuits would be brought if they are something for personal injury like a trip and fall or something of that nature because the “cause of action” arose in that state. So even if you pick a state with stronger protections like WY or NV, the cause of action arose in the state where the tenant fell, so likely that the court where the accident happened would have jurisdiction.

California tends to have more laws on the books and requirements and restrictions that it can be a good idea to form a CA LLC for out of state property so that you as a CA resident are covered, and to try to have your contracts fall under the purview of CA courts. It also is helpful to have a California LLC in case you ever sell that property and move into another state so that you do not need to form a new LLC altogether with new operating agreement, just re-register in the new state as a new foreign LLC. Also, the state of formation is likely where internal disputes would be brought among LLC members, so if you and a partner live in CA, you probably want to arbitrate in CA if the two of you had a disagreement. But, that is not always the right answer and you should speak with someone familiar with your personal situation to get advice specific to you.

*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.

@Amy Cheng

You will want to seek out professional advice for this situation.  Partnerships where one partner puts in sweat equity can have a very different way of accounting/taxes than partners who both put in capital.  You will want to have a solid understanding and written agreement ahead of time addressing possible issues that could arise.

@Miranda Warner

I have a bunch of recommendations for CPAs in San Diego if you're still looking.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

@Justin L.

You'll definitely want to  talk to an attorney to assist with the transaction.  There's not enough information to give an opinion, so speak with an expert for personalized advice, but generally it sounds like you would likely receive the gift with the same cost basis as your grandparents currently have.  If they did a 1031 exchange, their original cost basis likely carried over to this replacement property, and gifts take a "carry over" basis meaning their basis would likely become your basis.  There are some ways that you could possibly receive a basis step-up but likely would not be by gift.  You also want to think about the property tax implications depending on how low the property tax basis may be as this transaction could trigger a reassessment for the portion you receive from your grandparents (if the property is in CA).  And you could be looking at a big income tax bill too if you were to sell.  Depending on how large of an estate that your grandparents have, they may want to be cognizant of the implications for estate taxes as well.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

@Felipe Guerra

I have referrals for CPAs in San Diego if you're interested.  Not sure how much there is to be done to reduce your taxes now that the transactions are already completed, and if the sales took place in 2020 that you only have a few weeks to take steps to reduce any taxes, if you even can, but I'm happy to send you some referrals if you would like.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

@Emil Pinlac

Regardless of the format you choose, you likely want to have a written agreement as to everything you do, even if you do not form an entity. I'm not sure what type of partnership you mean if you're referring to - a general partnership or a limited partnership. A general partnership generally provides no liability protection and all partners usually have unlimited liability. A limited partnership allows for limited liability for the limited partners, but must have a general partner who usually has unlimited liability. Therefore, an LLC is usually the preferred method as all members enjoy limited liability. Do note, however, that LLCs and LPs are subject to an $800 annual tax in California but GPs are not, if that is any concern.

You will want to think of all the possible issues that could come up in a partnership and try to address these at the outset in your agreement.  You will want to decide what happens in multiple situations such as differing opinions, splitting distributions and profits, payment for services rendered to the entity, dissolution if one person wants out, transferring interests to others such as spouses or kids, rights of first refusal, etc.

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.

@Tze Lee

Every LLC that is "doing business" in California will be subject to the $800 tax. California does not recognize series LLCs.

You may want to do some research about what constitutes doing business.  This may be a good starting point:

https://www.biggerpockets.com/...

*This post does not create an attorney-client or CPA-client relationship.  The information contained in this post is not to be relied upon.  Readers are advised to seek professional advice.