Forming an LLC for your DC rental property positions you at the heart of the nation’s capital with enhanced legal defenses and tax benefits, a strategic move in one of the most dynamic real estate markets.
Starts at $0 + District of Columbia (DC) state fees and only takes 5-10 minutes
Whether you have a vacation rental, residential home, or apartment, you might not think of yourself as a business when you’re considering renting property. But the truth is you’ll be entering into contracts, collecting revenue, and managing expenses. Your tenants can sue you if things go wrong, just like any business. It’s a good idea to take advantage of legal protections for yourself, like forming a limited liability company (LLC).
The benefits of forming an LLC are immense for real estate investors for a fairly low cost. When you use our services to form your District of Columbia LLC, we can make the process quick and easy. And after formation, our other products and services can help make running your rental property business as smooth as possible.
First of all, forming your own LLC means that you’ll get more legal protections if something goes wrong. Even if someone sues you personally, they likely won’t be able to get at your personal assets until after they’ve sued the LLC.
To retain the LLC’s protection, you must keep the business’s property separate from your personal property. Even if an LLC holds your rental properties, a renter could reach your personal assets if you’ve treated your assets and business assets as the same. As long as you don’t commingle funds between your two entities, then you should be fine.
LLCs use “pass-through” taxation when it comes to taxes, so the business profits and losses pass through to the owners. Owners pay personal tax rates rather than the corporate rate. They’re not considered separate entities for tax purposes, so there aren’t any double taxation issues like with corporations. Additionally, you can take business tax deductions for your rental property if the LLC owns it.
Another option for holding your property in an LLC is the series LLC. With the series LLC, you can create a new “series” for each of your properties. The law protects each series as a separate entity. You’ll only file Articles of Formation once for the LLC and a Certificate of Series Designation when you want to add a new series. So long as you keep each property’s records and rental income separate, each series will have separate debts and liabilities. That way, if you have legal problems with one property, the assets managed by other series won’t be at risk.
If you plan to rent out property in Washington, D.C., you might want to create an LLC for tax purposes and legal reasons.
If you already rent properties but want to form an LLC, it’s only a little more complicated. First, let us help you form your District of Columbia LLC. We can help you with these five simple steps to formation:
Once you’ve completed formation, you’ll want to transfer the property to the LLC. You’ll file the updated deed with the D.C. Office of Recorder of Deeds. In addition to paying a recording fee for each deed, you’ll also need to pay taxes on the transfer. Typically, the seller pays a transfer tax and the buyer pays a recordation tax, determined by a percentage of the purchase price or fair market value.
Next, if you have a mortgage or loan on the property, you’ll want to inform your lender of the transfer. They’ll need to adjust the paperwork to reflect the LLC’s ownership. Because the business will be responsible for the property, prepare for the lender to rework your loan terms.
If you formed the LLC before renting the property out, be sure to update your lease or rental agreement to reflect the LLC’s ownership. If you’re already renting, you’ll want to inform your current tenants or renters of the change. Finally, you’ll want to edit your current rental or lease agreement to make the LLC a party to the agreement.
Anyone who wants to establish or continue leasing real estate can benefit from forming an LLC, whether for vacation or residential property. You’ll be able to purchase rental properties using an LLC if you set one up before you buy your property. If an LLC purchases real estate, then the deed for that land would go into the LLC’s name. This avoids having to transfer the property ownership between two different entities (your personal assets and the LLC). Read on for some additional details.
Recommended: Form a Series LLC in District of Columbia (DC)
Businesses are our specialty. Even if managing real estate doesn’t fit into your idea of “running” a business, forming an LLC can still help protect your personal assets from liability and give you some tax advantages. We’ll help you get started by creating an LLC for your rental properties. Our Worry-Free Compliance Service can help you stay compliant by keeping your business documents organized and reminding you of important dates. We can also help you with your business plan to identify and meet your goals faster. When you start your rental property LLC in the District of Columbia with us, our team of experts will guide you throughout the entire process.
Real estate investors can protect their personal property from lawsuits by forming an LLC to hold the rental property. You can deduct business expenses from your taxes if you own an LLC.
Your company name needs to contain the words “limited liability company” or “limited company” or the abbreviation “L.L.C.,” “LLC,” “L.C.,” or “LC.”
It’s best to register your LLC in the state where you will be doing business. If your rental income comes from property located in D.C. and your LLC is buying and selling property in D.C., the law considers your LLC as “doing business” in D.C. Therefore, you won’t need to register in your home state unless your LLC will also do business there.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
Written by Team ZenBusiness
ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.
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