Creating a Rental Property LLC in Maryland

Benefits of creating LLCs for rental properties in Maryland

Liability Protection

Having your Maryland rental properties owned by an LLC protects you individually against lawsuits and other liability issues. If you own rental properties in your name personally, then you open up all your personal assets to any lawsuit filed against you. But if your rental properties are owned by a limited liability company, of which you’re the sole owner, then your personal assets can’t be taken from you.

For example, let’s say someone gets hurt on one of your Maryland rental properties and files a lawsuit against you as the owner of the property. In that lawsuit, your personal assets are protected, and the only assets that the plaintiff can go after are the insurance policy limits and whatever assets are owned by your Maryland rental property LLC. Having your rental properties under the umbrella of a separate limited liability company protects personal assets like your home, savings accounts, and other private assets.

Pass-Through Taxation

Another benefit of having a rental property LLC in Maryland is the ability to use pass-through taxation. A pass-through taxation entity (PTE) is one where the LLC pays taxes through an individual income tax code rather than through a corporate tax code. In addition to LLCs, sole proprietorships, S corporations, and partnerships are all pass-through entities. Under this scenario, the rental income collected by your rental property LLC in Maryland is taxed only once at your individual tax rate.

Separation of Business and Personal Property

Another benefit to having a rental property LLC in Maryland is that it keeps your business assets separate from your personal assets. If you don’t have an LLC, then all your assets are considered personally owned. This would include your primary home, vacation home, savings and financial investments, investment properties, and any rental properties you may own. This opens up all your assets, both personal and business, to lawsuits, bankruptcies, and other negative things.

Series LLCs for real estate investors in Maryland

A series LLC is a special kind of limited liability company that allows the owners to establish different “series” under the LLC umbrella. Each series is treated as a separate company under the umbrella LLC, able to own property and assets, separate and apart from the other series. This protects each series from the liability that could potentially be incurred by the other series. Unfortunately, at this point, Maryland doesn’t offer series LLCs.

What to know before creating a rental property LLC in Maryland

There are many financial and legal benefits to creating an LLC for your rental properties in Maryland. Without this protection, you’re not getting the full benefits of what Maryland law allows for owning rental properties.

Steps to form an LLC for your Maryland rental property

As described on our Maryland LLC Formation Services page, it’s fairly easy to set up an LLC if you follow our simple guide. Here are a simplified version of the steps to creating a Maryland LLC:

Step 1: Name Your Maryland LLC

When selecting a name for your LLC, be sure to choose one that meets state 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: Appoint a Registered Agent  

Businesses in the state 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 a registered agent, we can help you find one.  

Step 3: File a Maryland Certificate of Organization  

To officially form your rental property LLC, you need to file a Certificate of Organization with the right state office and include the appropriate filing fee.

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 an Employment Identification Number (EIN)  

The IRS assigns businesses a nine-digit EIN that is used to identify their enterprise. 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. 

Transfer title of the property to the LLC

Once you’ve completed those five steps, you’ll be good to go! However, if you obtained the rental property that you want to use prior to forming the LLC, there are additional steps:

Remember that transferring your property to the LLC can cause disruptions to your financing arrangement. For that reason, we recommend that you contact the mortgage company before making the transfer. You may need to complete additional financial paperwork for the property or negotiate new financing terms and rates. Lastly, inform all current tenants or renters about the ownership change in writing. Also, update any current and future leases and rental agreements to reflect the new property owner. 

• File an updated deed (one showing the LLC as the property owner) with your local county clerk
• Pay any applicable title transfer tax

Who should form a Maryland LLC for their rental property?

It’s a good idea for anyone who owns rental property in Maryland to consider forming an LLC that would officially own the property being rented. A rental property LLC in Maryland can be established for residential rental properties as well as commercial rental properties.

You can create a rental property LLC in Maryland even if you already own rental properties. All you would have to do is transfer the ownership of the properties from yourself over to the LLC. But the easiest way is to create the LLC first if you’re planning on buying rental property. This way, when you purchase the property, it will be the LLC making the purchase and not you personally.

How We Can Help

With our full slate of formation and compliance tools, we’re here to help you create your rental property LLC in Maryland and help you see that it runs smoothly. Our simple, easy-to-use guides will walk you through everything that needs to be completed.

Disclaimer: The content on this page is for informational 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.