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Business Law

Limited Liability Companies (LLCs) for Rental Real Estate Properties

Imagine that someone injures themselves in your home. If that person brings a lawsuit against you, they can go after your personal assets—your home, your investments, your savings accounts, etc.

The same holds true for injuries that occur on rental properties. For many people, however, rental properties are a business investment, and thus, they don't want liabilities arising out of that business to affect their personal assets. If you are one of those people, you may want to consider setting up a limited liability company (LLC) for your rental property business.

Legal Benefits of an LLC for Rental Properties

An LLC is a separate legal entity, and therefore, when an LLC holds your rental properties, it separates you, personally, from your business. Therefore, if your rental properties are owned by an LLC, any legal claims arising out of those rental properties can be brought only against your interest in the company and the company's assets. Your personal assets remain protected.

Further, if you own more than one rental property, you may want to consider putting each property in its own LLC. That way, if a liability arises out of one of your rental properties, the effects of that claim will be limited to your interest in that specific property, alone, while your personal assets and interests in your other rental properties remain protected.

Tax Benefits of an LLC for Rental Properties

When you form an LLC, you can opt to be taxed as a sole proprietor. This allows any income generated from your rental properties to “pass through” your business to you, and you can pay taxes on that income as an individual. Additionally, unlike a corporation, because there is no separate tax on the LLC, you'll avoid double taxation of your income from your rental properties.

If you would like to discuss creating an LLC for your rental property or properties, please contact us to schedule an initial consultation, or review our business law packages, including limited liability company organization.

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