As a real estate investor, the last thing you want is for someone to sue your business and go after your personal property or vice versa. Want to make sure your personal assets are protected in any real estate-related lawsuits? Then you need a real estate LLC (limited liability company)! In this article, we’ll share the benefits of having an LLC and the three best states to form one. Keep reading!
Key Takeaways:
A real estate LLC is a business entity that separates your personal assets from your real estate-related assets, debts, and liabilities. Forming an LLC can help limit your risk and provide several tax advantages—all without requiring you to give up any ownership of your property.
NCH (Nevada Corporate Headquarters) offers LLC formation services in several states and can help you set up your real estate business properly!
Although it’s recommended that you form your LLC where your property is located, you can form it in another state. Just keep in mind that you will likely need to register a “foreign LLC” in the property’s state, pay additional filing fees, and pay state taxes where you earn income. Here are a few of the best states to form your LLC:
Although Nevada has higher filing fees and annual fees than most states, it does not have state income taxes, corporate taxes, or franchise taxes. Nevada LLCs also offer high-level asset protection and do not disclose LLC owner information in public records—giving you an additional layer of privacy.
Like Nevada, Wyoming has no state income tax. Wyoming LLC formation is also very affordable, thanks to some of the lowest filing fees and annual fees. What’s more, Wyoming is one of the few states that allow anonymous LLCs, and business owners aren’t even required to disclose their names in the Articles of Organization.
While Delaware has higher annual fees than most states, its initial filing fees are considerably lower. Like both Nevada and Wyoming, Delaware provides high-level liability protection, has no state income tax, and offers higher privacy protections than other states. The state also has no corporate tax!
Do you need an LLC for real estate investing? Here are a few of the benefits of forming an LLC:
Putting your rental property in an LLC ensures that any property-related debts and lawsuits are tied to the LLC and its assets, limiting your personal liability. This means that if someone sues your real estate business, your primary residence, bank accounts, and other property are typically off-limits.
LLCs are pass-through entities. This means you can report the LLC’s income and expenses on your individual tax return rather than on a separate business return, allowing you to avoid a potentially higher corporate tax rate and double taxation.
An LLC can also help you maintain a certain level of anonymity. Listing the name of your LLC on your rental property’s deed and title documents keeps your private information off public record.
Here are a few crucial factors to keep in mind when deciding where to set up your LLC:
Asset protection varies by state. The most LLC-friendly states protect not only your personal property in business lawsuits but also your business property in personal lawsuits.
Some states—like Nevada, Wyoming, and Texas—do not have state income tax. If you own rental property in these states, you won’t be required to pay state income tax, but you are not exempt from paying state income tax in another state where you do business.
To form an LLC, you’ll be required to pay initial formation fees, which can range from $35 to $500. You may also need to pay ongoing annual fees and franchise taxes. Some states have no annual fee, but states like Massachusetts and California require you to pay several hundred dollars each year!
Not all states provide the same level of privacy protection for LLC owners. Four states offer “complete” LLC anonymity—Nevada, Wyoming, Delaware, and New Mexico.
Ready to shield your personal assets from potential lawsuits against your business? NCH makes it easy to set up your business entity in some of the best states for real estate LLCs. An expert will walk you through each step, ensuring that your business structure is set up quickly and properly!