Why You Shield Your Personal Assets with an LLC
An LLC, or Limited Liability Company, is a type of legal entity that protects an owner’s personal assets and separates them from the business assets of owning and running a rental property investment. While there are many different types of business entities, LLCs are among the most common types of legal entities under which landlords own and run rental properties as a form of business. This is because LLCs have considerable benefits.
What Are the Benefits of Creating an LLC for
Your Rental Property? Limit Your Personal Liability
If you own your property individually and a tenant decides to file a lawsuit against you, then your personal assets are at stake. This means that personal bank accounts, homes, and other personal property will all be fair game for tenants to collect on in a lawsuit. However, if you create an LLC, then the only assets at stake are those owned by the LLC. In other words, your rental property is the only asset at stake and not your personal finances.
An LLC can be considered an additional form of insurance because it protects property owners from certain legal claims, such as slip-and-fall cases and contractual tenant disputes. However, rental property owners must also get commercial insurance to protect the property from claims made directly against the LLC.
For tax purposes, an LLC business entity must file a tax return as a sole proprietorship, partnership or corporation. A major tax advantage of an LLC is the ability to use pass-through taxation. For example, if you are the only owner of an LLC, you can choose to be taxed as a sole proprietorship. As a result, income and capital gains from the LLC will pass through directly to you and you’ll only pay taxes as an individual. Since there is no separate LLC tax, you’ll avoid double taxation.
Separating business from personal records enables landlords to stay organized and treat their rentals as a business. For example, property owners can set up a bank account under the LLC name that is separate from their personal accounts. The LLC’s bank account can be used for all rental transactions and to pay profits to your business.
In addition to separating the rental property from your personal assets, it is advisable to separate your rental properties from each other. To provide maximum protection, we highly recommend creating different LLCs for each property that you own. This way, if the property owner gets sued, only one property will be liable and the rest of your properties will not be affected by the lawsuit.
What to do Next?
An LLC for rental property should be considered vital for anyone who wants to invest in rental property in the US. The risk of being sued has never been higher and you must make sure that you protect your other rental properties and personal assets. An LLC ensures that nobody can touch what you have worked so hard to achieve.
800 77-EVICT (38428) to discuss what you need to do to protect your money by setting up an LLC for your rental property. Further information can be viewed on our website at: www.evict123.com/llc.
Dennis Block, of Dennis P. Block & Associates can be reached for information on landlord/tenant law or evictions at any of the following offices: Los Angeles: 323.938.2868, Encino: 818.986.3147, Inglewood: 310.673.2996, Long Beach: 310.434.5000, Ventura: 805.653.7264, Pasadena: 626.798.1014, Orange: 714.634.8232, San Diego: 619.481.5423 or by visiting www.evict123.com. Now, you can also read Dennis Block on Twitter, www.twitter.com/dennisblock or text him at (818) 570-1557. “Landlord Tenant Radio Weekly Podcasts can be heard at any time at www.EVICT123.com or download the app “EVICT123”.