Creating a Rental Property LLC in District of Columbia (DC)

Benefits of creating a rental property LLC in the District of Columbia

Personal Liability Protection

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.

Keeps Business and Personal Assets Separate

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. 

Pass-Through Taxation

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.

Series LLCs and Real Estate Investors in DC

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.

What to know before creating a rental property LLC in the District of Columbia

If you plan to rent out property in Washington, D.C., you might want to create an LLC for tax purposes and legal reasons.

Steps to form an LLC for your District of Columbia Rental Property

Step 1: Form Your LLC

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:

1. Naming your District of Columbia LLC
2. Locating a registered agent in the District of Columbia
3. Filing District of Columbia Articles of Organization
4. Creating an operating agreement
5. Applying for an Employer Identification Number

Step 2: Transfer Property into Your LLC

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.

Step 3: Inform Your Lender of the Transfer

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.

Step 4: Update Leases or Rental Agreements

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.

Who should form a District of Columbia LLC for their rental property?

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.

How We Can Help

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.