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C.Y.A. – Cover Your Assets!

Posted By: Maxwell Glasson

Why you should form an LLC to own and operate your rental property.

Last month, I posted a poll on the RHAWA forum asking landlords how they own and operate their properties. Surprisingly, only 26% of respondents are doing so under an LLC. That left 61% operating in their individual capacities, 5% through trusts, and 8% as “other. For those owning and operating their properties under their own names or a trust, you are exposing yourself to great liability under Washington’s tenant favorable laws and tort actions. Why not take advantage of the protections offered by a limited liability company (LLC)?

It’s a Shield!

The main purpose of creating an LLC is right in its name; it limits your personal liability. This does not mean that a party cannot seek compensation for an injury or if you mistakenly violate a statute or lease. However, the course of action would only be against the LLC itself, and any recovery collectable only from the LLC’s assets, not your personal residence, car, income, or items bookmarked for your family in your estate plan. Provided you are correctly segregating the LLC’s property and accounts from your own, your individual assets, other properties you own, and bank accounts would be unreachable.  Further, your individual reputation would not be on the line, but only the LLC’s name.

Taxes are not Complicated!

In most cases, you would want your LLC to be single-member and treated as a disregarded entity for tax purposes. Even if you own the property with your spouse with both names on title, the marital unit is still be considered a single member as Washington is a community-property state. This means that, for the most part, your tax return preparation does not change. You would still report all income on your form 1040. Even if you own your rental property collectively with others, an LLC, unless you elect otherwise, is treated as a partnership for tax purposes. The taxes are passed-through to each individual, and each would pay their own share of the tax on the income. 

It’s Not Difficult to Form!

Forming an LLC is a relatively fast and painless process, though it might appear daunting.  Namely, you would need to file the entity with the Secretary of State, draft and execute LLC Operating Agreement, obtain a FEIN from the IRS, maintain tax compliance, open a bank account and transfer the property to the LLC.  That said, I suggest anyone thinking of forming a business entity to consult with a professional while doing so. 

Get Started Today!

Glasson Legal can assist you with setting up your LLC, maintaining compliance, and shielding yourself and your assets. Our flat-fee approach to business formation takes out the guesswork and risks of doing it on your own, and removes the burden of monitoring compliance off of your shoulders.  Additionally, should an issue arise with your rental property, a tenant issue, or an eviction, you have established ties with an experienced real estate and business attorney already sitting in your corner.  Reach out and schedule a free consultation at (206) 627-0528 or online at glassonlegal.com.

Max Glasson is the owner of Glasson Legal, PLLC.  He provides legal support in all aspects of commercial and residential real estate, advising and representing his clients in leasing, purchase/sale transactions, title, and municipal issues. He also represents small businesses and individuals, enabling them to protect their brands, assets, and futures. No matter which services he provides, he is proud to represent Washington businesses and landlords. His aim is always is to further the objectives of his clients and help bring them success.