For landlords, owning property can be a substantial source of income and investment. However, while purchasing properties can be exciting and profitable, there are several considerations that should be made to ensure these investments are properly protected. One way to do this is through incorporating an LLC (Limited Liability Company). But is this the best option for everyone? Read on to learn whether you should own your property in an LLC or your individual name.
What is a LLC?
First and foremost, let’s discuss what an LLC is. It’s a type of business structure that separates your personal and business assets (including properties) and provides liability protection. If a lawsuit or claim is made against your property, your LLC can protect your personal assets from being affected. If you own property under your individual name, you may be putting your personal assets at risk.
However, forming an LLC can also be a complicated process, and you’ll need to consult with an attorney to make sure that any paperwork is done correctly. Creating an LLC also means a separate tax return, additional regulations, and fees. Maintaining an LLC can feel like you’re running two separate businesses (LLC and property management) that all require attention. If you don’t need the liability protection of an LLC, owning your property under your individual name can be more straightforward and less time-consuming.
How much will this cost?
Another consideration to make is the cost of forming an LLC. Depending on where your property is located, the costs of forming and maintaining an LLC could vary. A simple LLC formation could cost around $500 to $1,000, along with a yearly fee. If you have multiple properties, you’d need to create an LLC for each property. On the other hand, registering a property under your individual name can be significantly less expensive if the cost to form an LLC is too burdensome.
How will this benefit me?
Nevertheless, forming an LLC can be beneficial in some instances. If an LLC is set up correctly, it can protect owners from lawsuits, which may arise from tenants or employees. Owning a property in an LLC can also provide privacy protection, as an LLC assigns the property to the company, and not an individual’s name. If you’re concerned about liability or privacy protection, then forming an LLC could be an excellent option.
One major benefit of owning property under your individual name is the tax benefits you’ll receive. As the sole proprietor of your property, you’re allowed to deduct business expenses such as mortgage interest, property taxes, and repairs. Also, landlords are entitled to depreciate the value of their properties for tax purposes. These tax advantages can be considerable, and forming an LLC could limit your tax benefits.
Overall, owning your property under an LLC or your individual name has both advantages and disadvantages. Owning property under an LLC provides liability protection and privacy, but it can be more complicated to maintain and costly. However, owning property under your individual name can provide tax benefits and simplify the process. Since every landlord’s situation is different, it’s best to talk with an attorney and accountant to determine which options fit best for your needs.
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