Is your rental property in an LLC?

Updated: Mar 23


Many have heard about limited liability companies (LLCs), but what are they exactly? This post explains the key features of an LLC and why many landlords prefer this popular business entity.


Limited Liability

As the name indicates, an LLC provides limited liability protection to its members. This means that members can avoid personal responsibility for the debts and liabilities of their business. For example, an LLC member would not be personally responsible to pay an LLC's office lease.


However, there are instances where LLC members can be found personally liable. Failing to keep a separate accounting and management of business funds from personal funds is one way. LLCs without an operating agreement can also be at risk. Further, when executing contracts and agreements on behalf of an LLC, members must be mindful to sign as a member or agent of the business.


On a grander scale, those who use the LLC for illegal or fraudulent purposes will not be afforded limited liability protection.


Taxation

For tax purposes, the IRS can treat LLCs as corporations, partnerships, or disregarded entities. This provides a great deal of flexibility for owners. For a smaller or new LLC, filing as a corporation may not make financial sense because the business is not generating enough revenue. However, as the business grows, LLC members can file as a corporation in the following years. LLC members should consult a certified public accountant when deciding how to file.


Rental Properties

With an LLC, certain business expenses will arise. However, landlords need not worry about Washington's business and occupation (B&O) tax. This is because rentals of real property are not subject to B&O tax or retail sales tax. Department of Revenue Washington State.


Moreover, landlords are able to avoid personal liability in the event of lawsuits arising from the rental property if the property is in an LLC.


Disclaimer: The purpose of this post is to provide general information and a general understanding of the law, not to provide specific legal advice. By accessing this blog site you understand that there is no attorney-client relationship between you and Sekhon Law, PLLC. This post should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.