There are many benefits of forming an LLC for rental properties in Maryland. Learn how to create an LLC and how we can help make it easier for you.
If you own rental property in Maryland, you may not realize that you can create a company for your landlord/tenant business. You may not understand the benefits of creating a legal entity for your rental business, but there are financial and legal liability benefits in forming a rental property LLC in Maryland.
Setting up an LLC is advantageous for many reasons. Not only are they easy to create, but the liability protection, tax benefits, and flexibility in management style make them a great option for real estate investors. We can help you form a rental property LLC in Maryland today. And after formation, our other products and services can help make running your rental property business as smooth as possible.
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:
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.
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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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The benefits of forming a limited liability company to own and operate your rental property include the protection of your personal assets against lawsuits related to your rental properties.
There are also tax benefits that will allow you to deduct certain expenses from your income, such as real estate taxes and mortgage interest payments.
This is called depreciation. If you form an LLC, you may also be able to take advantage of other tax breaks, such as pass-through income.
You can name your LLC anything you want, as long as the name isn’t already taken by another business in Maryland and abides by state law.
You must file a Foreign Entity Registration Statement in any state where you have a place of business or conduct business. The filing fee is $50 per year. You can search for forms on the Secretary of State’s website.
You only need to pay the filing fee.
Yes, but it requires more effort and time than simply registering a regular corporation. It’s best to consult with a lawyer who specializes in this area to see if it makes sense for your situation.
Maryland Business Resources
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