We may be moving for a year or two. We’re looking into renting out our house while we’re gone. Is there any advantage to running the rental business through an LLC?
It might be worth discussing with a NY lawyer. The main purpose of an LLC (as the name implies) is to limit your personal liability. If you have adequate insurance, you might not need anything else. I have no idea of the tax implications, but my uninformed opinion is that LLCs are “pass through” for tax purposes and you won’t come out ahead on that.
I have only rented out a house once, and it was a pretty simply “handshake” kind of deal. Nothing bad happened. I believe some of our SDMB friends own rental properties and might have a better insight.
If the mortgage was based on the property being owner occupied, you might trigger a default if you convert it to a rental. Creating an LLC might call attention to that change. YMMV, naturally.
Do you not want to work with a property management company, who can presumably take care of all the legal and tax hurdles for you?
We’re OK on that front; the mortgage has a clause requiring 1 year of owner occupancy after signing, but we’re well past that now.
We are, but I’m trying to do my due diligence, as well.
What is the purpose of your LLC? Since it doesn’t own the property it’s renting do you just want it to act as a rental agent?
If I were you, I’d ask the property management company for advice. It may be a waste of money to set up the LLC.
The LLC would be the name on the (separate) bank account, would be who cashed/wrote the checks. The idea is that it would be a way to segregate the finances of the rental business from our personal finances, and also to act as a liability shield for us.
You might be right.
I’m not sure it would given you will still be the owners of the property.
I like this idea, but I’m not sure you need an LLC to do it.
It seems to me all the LLC would do is substitute for a property management company. I don’t imagine off hand any scenario where the LLC would be the fall guy for liability. OTOH a local property management company could do basic things like chasing down rent, ensuring utilities and insurance are paid, keeping an eye on the property, arranging emergency repairs, maybe even finding and vetting replacement tenants - stuff that a name-only front company really doesn’t do, and would be difficult to do from remote.
I imagine the total property management process too would keep the oeverall finances separate from your personal finances, depending on the arrangement.
LLCs have no tax advantage, the IRS does not care about that status. I cannot speak about NYSDTF. If you want personal liability limitations, or a DBA then forming a company is one option, but as far as real estate goes that’s more for real estate professionals, not a single rental user. Different tax forms too (Schedule C vs. E)
Not if, as is typically done, ownership is transferred to the LLC.
Absolutely put it in an LLC. I have several rental homes and all are in LLCs. If someone decides to cook meth in the house and sets it on fire and is maimed, they can come after YOU the owner if your homeowners doesn’t pay. It’s cheap and easy to set up an LLC and it will protect you from liability.
The OP specifically said “we would not be transferring ownership of the house from us to the LLC”
I missed that. I thought everyone who owned rentals transferred ownership to the LLC for protection.
Is tranferring ownership considered a sale at full market value for tax purposes?
Would the owner of a house be liable for a tenant’s misdeeds and their consequences as in the meth scenario?
Criminally? Not simply for being the owner. Many marijuana grow operations (back in the day) were in rental houses. Often using fictitious names. In a few cases the authorities tried to establish that the landlord was part of the scheme. (and in a few cases, they were). (One of my clients owned the house, but created imaginary tenants to shift the blame to if he got caught). But generally the owners were innocent victims of the tenants and were not charged.