Iowa LLC for an investment property but live in CA, what are my options do I have to register as a foreign LLC in California

[itsastart]

I have an investment property that is in the state of iowa, that I am thinking of changing to an LLC with an Iowa address, registared agent. Partnership my wife and I llc. I conduct NO business in the state of California, the bank account is not in California, but I do reside in CA. Am I legally required to register as a foreign LLC in ca. No money is going to made personally for two years at least. After my loan I only bring in $400 a month and that is going into an account for incidentals or repair of the property. And if so am I required to pay a mandatory $800 tax bill even though no money is earned personally for myself. Thank you any light you can shed would be appreciated. Thank you in advance.

 

[quincy]

I have an investment property that is out of state, that I am thinking of changing to an llc. I conduct NO business in the state the bank account is not in California but I do reside in CA. Am I legally required to register as a foreign LLC. No money is going to made personally for two years at least. After my loan I only bring in $400 a month and that is going into an account for incidentals or repair of the property. And if so am I required to pay a mandatory $800 tax bill even though no money is earned personally for myself. Thank you any light you can shed would be appreciated. Thank you in advance.

What do you mean when you say you have investment property in Iowa but you conduct no business there?

 

[itsastart]

What do you mean when you say you have investment property in Iowa but you conduct no business there?

Sorry about that I copied and pasted my question to the California tax board. I am starting the LLC in Iowa but I want to know if I have to register in California as a foreign LLC since I live here I will reword the question thank you.

 

[LdiJ]

I have an investment property that is in the state of iowa, that I am thinking of changing to an llc. I conduct NO business in the state of California, the bank account is not in California, but I do reside in CA. Am I legally required to register as a foreign LLC in ca. No money is going to made personally for two years at least. After my loan I only bring in $400 a month and that is going into an account for incidentals or repair of the property. And if so am I required to pay a mandatory $800 tax bill even though no money is earned personally for myself. Thank you any light you can shed would be appreciated. Thank you in advance.

Just a few things that you should be aware of from a tax standpoint...

If its a single member LLC that is a disregarded entity for tax purposes so the income and expenses from the investment property will have to be included on your personal federal and state tax returns whether you make a profit or not. You entire loan will not be considered to be deductible. Portions of it will be deductible, 1) mortgage interest, 2) property taxes, 3) insurance. For tax purposes you cannot keep a "fund" for future repairs. Those repairs can be expensed as they occur. Therefore you are incorrect that no money will be made personally for at least two years. You may not have any profits in the end but you will have income and expenses that will need to be reported.

If its a multiple member LLC then it will default to a partnership and the profits or losses will flow through to the partner's personal tax returns via schedule K1.

California will tax you on any profits that you have, and Iowa will tax you on them as well, because the property is located in Iowa. You won't be able to get around that. In my opinion you won't have to register the LLC in CA, because it will be conducting no business in CA. However if the address of the LLC is in CA, that will be problematic. It honestly might be better NOT to do this through an LLC and just make sure you that you a have good liability insurance policy.

 

[Taxing Matters]

And if so am I required to pay a mandatory $800 tax bill even though no money is earned personally for myself. Thank you any light you can shed would be appreciated. Thank you in advance.

If you form the LLC in Iowa and the LLC only conducts activity in Iowa then you will not need to register the LLC in CA as a foreign LLC and you won't have to pay the $800+/year CA franchise tax. Of course, as a California resident you'll still pay CA income tax on the income you have from it, but you'll get a credit against that for the Iowa income tax that you pay.

 

[itsastart]

Just a few things that you should be aware of from a tax standpoint...

If its a single member LLC that is a disregarded entity for tax purposes so the income and expenses from the investment property will have to be included on your personal federal and state tax returns whether you make a profit or not. You entire loan will not be considered to be deductible. Portions of it will be deductible, 1) mortgage interest, 2) property taxes, 3) insurance. For tax purposes you cannot keep a "fund" for future repairs. Those repairs can be expensed as they occur. Therefore you are incorrect that no money will be made personally for at least two years. You may not have any profits in the end but you will have income and expenses that will need to be reported.

If its a multiple member LLC then it will default to a partnership and the profits or losses will flow through to the partner's personal tax returns via schedule K1.

California will tax you on any profits that you have, and Iowa will tax you on them as well, because the property is located in Iowa. You won't be able to get around that. In my opinion you won't have to register the LLC in CA, because it will be conducting no business in CA. However if the address of the LLC is in CA, that will be problematic. It honestly might be better NOT to do this through an LLC and just make sure you that you a have good liability insurance policy.

It is a it is a partnership LLC through me and my wife I have a registered agent in Iowa and that address is used as where the entity was formed thank you for your input and anymore that you have on the subject would be greatly appreciated

If you form the LLC in Iowa and the LLC only conducts activity in Iowa then you will not need to register the LLC in CA as a foreign LLC and you won't have to pay the $800+/year CA franchise tax. Of course, as a California resident you'll still pay CA income tax on the income you have from it, but you'll get a credit against that for the Iowa income tax that you pay.

Thank you for your reply it is greatly appreciated