Guide for rental owners
Should my rental be in an LLC? How it changes your taxes
An LLC is mostly about liability, not tax savings. Here's what actually changes.
Many owners hear they should "put the rental in an LLC." The main reason is liability protection, not lower taxes. For most small landlords, the tax result stays about the same.
Single-member LLC
The IRS ignores a single-member LLC for income tax ("disregarded entity"). Your rental still goes on your own Schedule E, with the same deductions and the same tax. A married couple in a community property state like California can often choose this treatment too.
Multi-member LLC
With two or more members, the LLC is usually taxed as a partnership. It files its own return (Form 1065, with the rental on Form 8825), and each owner gets a K-1 for their share. That means another return to prepare each year.
Costs to weigh
- State fees: California charges an $800 minimum franchise tax every year, plus a fee once revenue passes $250,000.
- Your mortgage: transferring the deed can trigger the loan's due-on-sale clause; talk to your lender.
- Insurance and title: policies and title insurance may need updating.
- Property tax: in some states a transfer can trigger a reassessment.
The bottom line
A single-member LLC rental pays the same income tax as owning it in your name, plus about $800 a year in California. You're paying for liability protection, so weigh it with an attorney and your CPA.
Tethered Properties does this for you
Tethered Properties handles both: a Schedule E report for properties you own yourself, and a Form 8825 summary with each owner's share for multi-member LLCs.
This guide is general information for rental owners, not tax advice. Tax rules change and every situation is different; your CPA or tax advisor knows your full picture. Figures are estimates.