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LLC Benefits For Rental Properties

llc benefits rental propertyBy Jason Watson, CPA
Posted Saturday, August 3, 2024

There are several benefits of owning your rental property in an LLC as we’ve discussed throughout the chapter. Here is a summary-

  • Separate checking account for compartmentalization. However, you could easily open another personal checking account for the same effect.
  • Anonymity provided the state allows for displaying the registered agent only (many do, but many also list the “organizer” who is normally you, the person). If a state requirements additional ownership reporting beyond a registered agent, a multi-tiered or multi-entity arrangement can solve this such as a Wyoming LLC owning a Texas LLC, which we discuss in more detail.
  • Orderly ownership (wealth) transfer baked into the Operating Agreement side-stepping Wills and Trusts. This is super efficient when a holding company LLC owns a gaggle of other LLCs that each own a rental.
  • Division between the holding company and the operating company.

With a multi-member LLC you also get these fun things-

  • Lower audit rates. Not that you’re trying to do anything nefarious, but who wants to defend their actions if avoidable?
  • Mechanically show the basis in the rental property absorbing (cloaking) that big depreciation deduction from your even bigger cost segregation report.
  • Rules of the road for all members (owners) of the rental property or real estate venture including deal structures.
  • Exit strategies including divorce, death, valuation approaches, etc.
  • Some, yet flimsy, protection with Charge Orders and other financial protections.

Downsides with an LLC owning a rental-

  • Additional tax return and the associated preparation fees in a multi-member LLC environment (unless you are in a community property state).
  • Annual Secretary of State filings. Some states are cheap, some are insanely expensive.
  • Franchise tax or some sort of LLC fee charged by a state’s Department of Revenue (which are separate from Secretary of State filings… they get to double their pleasure).

Jason Watson, CPA, is a Senior Partner of WCG CPAs & Advisors, a boutique yet progressive tax,
accounting and business consultation firm located in Colorado serving real estate investors worldwide.

Jason Watson CPA LinkedIn     Jason Watson CPA Email

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