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LLC in my state or state where property is owned

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  • LLC in my state or state where property is owned

    My wife and I are looking to buy rental property in a neighboring state. If we were to form an LLC for the property is it better to form it in our state or the state where the property is located. We are in NY and looking buy in NJ. Can an LLC be formed after a property is purchased?

  • #2
    I'm not sure it would make much of a difference.  If formed in your state you'd likely need to register your LLC with NJ as a foreign LLC.

    If you formed the LLC after the property was purchased you'd need to transfer title to the LLC.  If you formed it before you'd need to make sure the LLC acquires the property rather than you personally.

    If both you and your wife are members of the LLC then you'd need to file a Form 1065 partnership tax return each year.  Unless it's part of some bigger strategy I'd consider having just one of you own the LLC that owns the rental to avoid this extra expense.

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    • #3
      For lurkers and not the OP. Just like with self-employment, you can elect to file as a Qualified Joint Venture (QJV) for rental income instead of filing the much more complex partnership return. However in the OP's case, you can only use a QJV in conjunction with an LLC if you are in a community property state (NY or NJ are not).

      Unlike with self-employment which requires each spouse filing a a separate Schedule C/SE to allocate the business income/expenses. With QJV rental income you can still file a single Schedule E. You report your property interests as separate properties on Line 1 for each property and enter your share of the applicable income, deduction, or loss. on lines 3 through 22 for each separate property interest.

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      • #4
        What about an umbrella policy?

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        • #5
          Are there advantages for using a QJV in a community property state even if the property is on one spouse name? Or since it's a community property state you either have to file a Schedule E as a QJV or separate Schedule C/SE for each spouse even if the property is one one spouse name? Thanks.

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          • #6


            Are there advantages for using a QJV in a community property state even if the property is on one spouse name? Or since it’s a community property state you either have to file a Schedule E as a QJV or separate Schedule C/SE for each spouse even if the property is one one spouse name? Thanks.
            Click to expand...


            The benefit of a QJV is that it allows spouses who jointly own property to avoid filing a partnership return. If the property is in only one spouse's name, a QJV d/n apply.

            In CP states, the benefit of a QJV for co-owner spouses is that you can also use one if you are set up as an LLC. In non-CP states, you cannot use a QJV through an LLC. This is the disadvantage of a QJV for rental property unless, as mentioned by StateOfMyHead, you have appropriate umbrella coverage.

            Back to the original question, it's not going to matter much either way. However, the LLC registration process in NY is more onerous than in NJ.

            It is more difficult to set up an LLC after purchase if you have a mortgage because the bank may balk at transferring the mortgage. This happened to clients in MD and it took hiring an attorney and a couple of months to get it accomplished (clients are very busy couple and I'm sure didn't stay on top of following up daily, of course). Depends on the bank, maybe the state. Given the myriad tax and property laws in NY and NJ, I wouldn't be surprised for you to experience similar there. Set up the LLC and buy the property through it. You'll still be required to sign on the mortgage personally.

            Would love for @hank to chime in on that last part!
            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              We are looking at our first possible investment. Is there anything wrong with just adding more umbrella insurance? If so how much?

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              • #8




                We are looking at our first possible investment. Is there anything wrong with just adding more umbrella insurance? If so how much?
                Click to expand...


                Not really. The amount is subjective, depends on your personal situation. Be sure all vehicles + your residence are under the umbrella, too.
                Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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