Creating a Rental Property LLC in Idaho

Benefits of creating LLCs for rental properties in Idaho

Liability Protection

If you own an investment property as an individual, you’re personally liable for any financial obligations on the property and legal actions taken against you. This means that your personal assets are at stake. By creating an LLC, you shield your assets and only the LLC’s assets can be used to satisfy a debt or legal claim. 

Pass-Through Taxation

For business structures like corporations, its income is taxed twice — once at the corporate level and again at the individual level when the shareholders receive their distributions. This is known as double taxation. LLCs, on the other hand, have the advantage of pass-through taxation. With this type of taxation, the income that the LLC makes passes through to you, and you report it on your personal tax return. This is incredibly beneficial because your rental income is only taxed once rather than twice. 

Separation of business and personal property

An Idaho real estate LLC allows you to keep your business and personal assets separate, which is important for many reasons. Commingling business and personal property can leave your assets susceptible to creditors and other claims. Protect your property with an LLC.

For tax purposes, it’s important to keep personal and business assets separate. You can claim deductions on your tax return for business-related expenses as long as you have sufficient documentation. For example, if you use the same bank account for business and personal expenditures, it’s difficult to provide a clear paper trail to the IRS to show proof of business expenses. With an LLC, you can open a separate business account and track all business expenses in one clear record. 

Finally, you want to separate business and personal assets so that the LLC can build its own credit. This allows the LLC to qualify for larger business loans. 

Series LLCs

A series LLC is a unique form that’s analogous to a corporation with subsidiaries. After you create the “parent” LLC, you can set up different series within that LLC. Each series has separate membership interests, assets, books, and records. Every series operates independently and provides limited liability protection between the “parent” LLC and each series. 

These are advantageous for real estate investors with multiple rental properties. Rather than creating a new LLC for each property to shield yourself from liability, you can set up a series LLC with a separate series for each piece of property. 

Although series LLCs aren’t available in Idaho, it’s important to know about them if you do purchase property in a state where they’re offered. 

What to know before creating a rental property LLC in Idaho

For many potential business owners, the LLC structure offers limited liability protection and low formation and maintenance costs, as well as other benefits.

How to form an LLC for your Idaho rental property

Step 1: Choose LLC Name

When selecting a name for your LLC, be sure to choose one that meets Idaho’s requirements. We can do a search for you to see if the business name you want is available. If it is, let us reserve the name while you get the filing paperwork together. 

Step 2: Select Registered Agent

Businesses in Idaho are required to appoint a registered agent. This person is responsible for receiving important documents on behalf of the LLC, such as state correspondence and legal notices. If you need an Idaho registered agent, we can help you find one.  

Step 3: File Certificate of Organization

To officially form your rental property LLC in Idaho, you need to file a Certificate of Organization with the Idaho Office of the Secretary of State and include the appropriate filing fee. With our LLC Formation Service, we can file your documents for you. 

Step 4: Create an Operating Agreement

Your LLC’s Operating Agreement is one of your most important business documents. It governs how your LLC runs and provides instructions for anything from voting procedures to dissolve the company. If you’re not sure how to create an Operating Agreement, we offer templates that can serve as a guide. 

Step 5: Apply for Employment Identification Number (EIN)

The IRS assigns businesses a nine-digit EIN that is used to identify their enterprise. An EIN is like a social security number for your LLC. Having one is necessary for certain business matters, such as opening a business bank account, hiring employees, and getting financing. 

You can apply for an EIN yourself on the IRS’s website, or we can do it for you with our EIN service. 

Step 6: Transfer Title 

If you purchased a property in your individual name prior to forming the LLC, you’ll need to transfer the title of the property to the LLC. The new deed transferring ownership has to be filed with the County Recorder’s Office where the property is located. 

Luckily, Idaho doesn’t have a title transfer tax. 

Step 7: Inform Lender

Make sure to notify the lender of the change in ownership if the property is subject to a mortgage. 

Step 8: Update Rental or Lease Agreement

If renters or tenants are currently living in the property, notify them that you’re transferring ownership to the LLC. Whether you have tenants or not, be sure to update the rental agreement to reflect the LLC’s name as the property owner. 

Who should form an Idaho LLC for their rental property?

For real estate investors who want to rent out their property for vacation or residential purposes, creating an Idaho real estate LLC is a good idea. Keep in mind, it’s much easier to form an LLC prior to purchasing any property. Otherwise, you have to retitle the property in the LLC’s name, which usually means extra paperwork and costs.

How We Can Help

Owning and managing rental properties in Idaho comes with risks and rewards. Minimize your risks by creating an Idaho real estate LLC. We have the resources, services, products, and support you need to create and run a successful rental property LLC in Idaho. From filing your formation documents with our LLC Formation Service to helping you maintain good standing with the state law through our Worry-Free Compliance Service — we’ve got you covered.