All Forum Posts by: Ricardo P.

@Will Barnard Yeah, beliebe me when I first started investing out of state and heard about this I was left in shock at the outrageous over reach by the FTB. It kind of hard to be surprised any more at the lengths CA will go to to get money.

Can you post this info from the State showing this is true? I have had multiple entities in TX in the past which held my real estate assets in TX, living in CA and was never charged by the Franchise Tax Board for my TX entities. So unless something has changed recently you can point too, I don’t think you are correct. 

From the FTB:

Example 1

Paul is a California resident and a member of a Nevada LLC. The Nevada LLC owns property in Nevada. The LLC hires a Nevada management company to collect rents and provide maintenance. Paul has the right to hire and fire the management company. He occasionally has telephone discussions from California with the management company in Nevada regarding the property. He is ultimately responsible for the property and oversees the management company. Paul conducts business in California on behalf of the LLC. The LLC must file Form 568.

There's been numerous discussions on BP about this and CPA's agree that in this scenario you are required to pay the $800 as ridiculous as it sounds.

Originally posted by @Will Barnard:

Originally posted by @Kyle Phelps:

Originally posted by @Account Closed:

@Kyle Phelps brotha you don't need an LLC. Like @Jerry W. says you need good insurance.

I drank the LLC "kool-aid" when I owned 20 houses in Detroit under 20 LLCs. It was stupid, expensive, and time consuming.

Even now with close to 40 units in CA, most of it is in my personal name with a $5M umbrella policy.

Everything Jerry said was correct, except that CA is broke. Very large budget surplus my friend! Perhaps they can lower the taxes now :)

Aren't you missing out on tax benefits by not forming an LLC? I can understand that being negated if California does impose the franchise tax.

I'm still unable to find anything concrete on California imposing the franchise tax, when I don't have any customers in California. "Doing business in California" without a customer in California blows my mind, if they do impose that. 

If they do impose franchise taxes on California residents forming out off state LLCs,  doing business out of state.... I wonder if maybe  it would beneficial to be a salaried, w-2 employee. As apposed to a member/manager. 

I get that with just one or 2 investment properties out of state may not make financial sense, but later down the road

There are no tax benefits to using an LLC, an LLC is a pass through entity which the income passes from the entity to your personal taxes via a K-1. The LLC is mainly for liability protection. An S Corp will have some tax advantages but you need to speak with your CPA as to how and how much.

Kyle, you are correct, CA does not impose franchise tax fees on an entity formed in another state where the property is also located in another state. If you tried to form an entity in another state to do business here in CA, then yes, they would charge you the $800 franchise tax.

This is not correct. California imposes the $800 annual fee regardless of where the entity is formed or what state the property is located. It's absolutely crazy but that's California for you.

@Kelly Putz

You actually need to double your basis on the property minus the cost of land in order to qualify. So if the structure is worth say 300k you need to add improvements of at least that much in order to qualify for tax benefits. 

There is something called a family opportunity mortgage where you can purchase a property for a parent who doesn’t qualify on their own and you can owner occupant rates. Your lender should know about it.

Rent control is probably the only single issue that all economists on both the left and right will agree simply doesn't not work. All you need to do it look at the Bay Area and tell me what exactly has rent control done to help people stay in their homes? Highest rents in the country by far, lack of incentive to build more units, and landlords who refuse to maintain their rent controlled units. Rent control has vast negative effects not only on us as real estate investors but on tenants as well.

I’m not sure why your CPA told you this information but it’s incorrect. You can still deduct property taxes on your investment properties as it’s a business expense.

@Sam Josh the statistics don't lie. The US Census bureau clearly shows that for several years the net state to state migration has showed a loss of people from California going to other states. The only reason the population has increased is due to birth and immigration from other countries. All the high paying tech jobs are being filled with people here on H1-B visas from China and India. So clearly there is an issue for the average Californian when more are choosing to leave each year than are being replaced with from other states.

Can you email me some more info about the property ? Thanks

I've moved out of state twice and have always returned home to CA. I love this state but I can totally understand people leaving, especially the middle class. CA is unaffordable for most people and I've had several friends who have moved to other states and they said their quality of life has improved dramatically. They can afford a home and aren't being taxed to death plus they can always come back and enjoy California on vacation whenever they want.