Creating a Rental Property LLC in Kentucky

Benefits of creating a Kentucky rental property LLC

Liability Protection

For most businesses, the most important benefit of an LLC is the liability protection it offers. When you form an LLC in Kentucky, you’re forming an entity that’s legally separate from yourself. This can limit your liability exposure to the LLC’s debts and liabilities. For example, if your tenant were to sue for a withheld security deposit, they’d likely have to look to the LLC for compensation — and not you personally.

Pass-Through Taxation

Another advantage of an LLC is the tax benefits it provides. When you form a corporation, the income of the corporation is usually taxed at the corporate level. Then, when the corporation issues a dividend to you as a shareholder, you may be subject to taxes on the dividend as well. This often leads to double-taxation issues. Most LLCs are pass-through entities for tax purposes, which means that you’ll probably report the LLC’s income on your personal taxes and only get taxed once.

Separation of business and personal property

Limited liability isn’t the only benefit from your LLC’s separate legal status. Separating your business and personal assets is often a good idea. For one, you can more easily keep track of the business this way. You may also be able to use this separation to ensure the business assets aren’t misappropriated.

Series LLCs for real estate investors in Kentucky

One thing that really makes LLCs stand out is the ability to form series LLCs. With a series LLC, you can easily create subsidiaries for your LLC. In fact, you can create a separate “series” for each property you own. Instead of going through the entire formation process again, the series LLC streamlines formation. If you use each subsidiary to hold separate residential property, you also get an additional layer of liability protection.

What to know before creating a Kentucky rental property LLC

What makes LLCs so effective for real estate investors is the fact that they have limited liability, simple taxes, and offer a great deal of flexibility. There are other options available to investors, such as corporations and sole proprietorships. Corporations aren’t a bad option, but they can add some unwanted complexity. And a sole proprietorship can open investors up to unnecessary liability. For many, an LLC is the best option.

Steps to form your rental property LLC in Kentucky

Step 1: Choose LLC Name

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: Select 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 Articles of Organization

To officially form your rental property LLC, you need to file Articles 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 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. 

Transferring Property to the LLC

To transfer any existing rental properties, you’ll likely need to file a deed with the appropriate county clerk. For example, if your property is located in Lexington, you’ll probably file the deed with the Fayette County Clerk. This transfer may be subject to a transfer tax.

Inform the Lender

If you have a mortgage or loan on the property, you’ll likely need to inform the lender of the transfer, and the lender may have to adjust some of the paperwork. Transferring the property could also affect the interest rate or terms of your loan.

Notify Tenants

You need to notify any tenants if you transfer the property. You may also want to consider amending or replacing any existing leases. If you don’t have any active tenants, amending your lease or rental templates may still be a good idea.

Who should form a Kentucky LLC for their rental property?

A Kentucky rental property LLC can be a fantastic option for real estate investors. Whether you already own several rental properties or you’re looking for your first investment, the benefits of a Kentucky LLC are hard to pass up. 

When should you form a rental property LLC in Kentucky?

The ideal time to form your Kentucky LLC is before you buy your first rental property. When you form the LLC first it is easier to transfer the properties into the company. However, if you already have some rental properties, don’t worry. An LLC can still be very helpful. You may just need to take some additional steps, which are discussed below.

How We Can Help

Forming your rental property LLC in Kentucky doesn’t need to be difficult or confusing. Our formation services can allow you to get your LLC running in no time, and we also offer other important services for your LLC including business plan templates and our Worry-Free Compliance Service to keep your business legally compliant with the state. No matter what stage you’re at in starting or running your business, we’ve got the tools and resources to help you succeed.