Is An LLC Right For Your Rental Property?

How To Protect Your Assets & Simplify Your Taxes With The Right Business Structure For Your Rental Property

Rental businesses, whether an apartment building, short term vacation rental, or simply leasing out a room in your home, are becoming increasingly popular. It’s important for rental property owners to understand how they can protect their assets from liability and simplify their business taxes by choosing the right business structure. Consult with your Arizona business attorney to learn more about your options and determine which business structure might be best for you. For many rental owners, an LLC is the best option.

How To Form An LLC In Arizona

A limited liability company (LLC) is a type of business structure that can be owned by yourself, with one business partner, or with a group of business partners. LLCs are created at the state level, which means that the process of creating an LLC and what it means for you will change based on which state you are working in.

What Benefits Will I Receive From An LLC For My Arizona Rental Property?

Creating an LLC offers multiple benefits for your Arizona rental property:

Reducing Your Personal Liability

If you own property and someone files a lawsuit against you, your personal assets are at risk. When you own an LLC and someone sues your business, only the assets owned by the LLC are at risk. This means that only your rental property and related assets, and not your personal home, other property, and personal finances, are at risk in the lawsuit. It’s important to note that this is generally speaking and will not apply to every lawsuit. Ask your rental property lawyer for advice.

Separate Your Rental Properties

Owning an LLC not only separates your rental property from your personal assets and property, but can also be used to separate your rental properties from each other. Your business lawyer may recommend that you file a separate LLC for each rental property that you own. This can insulate your other properties from claims. In case of a lawsuit, only the assets belonging to one specific rental property will be at risk; the other properties that you own will be protected and separate from each other.

Pass-Through Taxation

This is a significant benefit for businesses that are owned by individuals. Some types of business corporations are taxed twice: once on their business profits, and then again when owners receive payouts from the business. With an LLC, your business income passes through to you as the business owner and is not double-counted. For most business owners, pass through taxation from an LLC will reduce the amount of money that you owe in taxes.

Separate Your Business & Personal Expenses

When you create an LLC for your Arizona rental property, you can also create a separate bank account for your business. This keeps your personal and business expenses separated from each other, making it easier to file your taxes and understand how much income you’re making. Separate bank accounts will help you clearly know which expenses are for your business and which are personal.

When Should I Create An LLC For My Rental Property?

You can transfer ownership of your property to an LLC anytime, but owning an LLC before buying a rental property is easier. If you transfer ownership of an existing rental property to an LLC, you’ll probably need to update all of your rental agreements, close a new mortgage with the associated closing costs and a likely change in your interest rate, and transfer the title of the property. These actions may also trigger a title transfer tax. Your business attorney can guide you through this process and assist with the paperwork if necessary.

How Do I Create An LLC For a Rental Property?

Consult with your landlord lawyer regarding your rental business. A skilled attorney can help you understand what type of business structures are available and which will be most advantageous to you. When you’re ready to move forward, your attorney can handle all of the necessary paperwork and details. Although you can file for an LLC yourself, working with an experienced attorney can help you avoid costly mistakes and set up your business for success.

Protect Your Rental Property Business With The Help Of Denton Peterson Dunn

If you own an apartment building, short term vacation rental, or another rental property, you need guidance from Arizona’s leading business attorney firm. At Denton Peterson Dunn, we have the expertise you need to help your business move forward profitably and successfully. Our team can help you make the best decisions for your business, draft and review contracts, negotiate rental agreements, discover areas where your business may be vulnerable to liability, guide you through legal compliance, and assist with many other areas of business. Give our trusted team a call today to schedule your free consultation! We look forward to serving you.

Brad Denton – Denton Peterson Dunn