Strumming your Tennessee rental property into an LLC orchestrates a harmony of legal security and financial melody, tuning your investment to thrive in the Volunteer State’s vibrant real estate market.
Starts at $0 + Tennessee state fees and only takes 5-10 minutes
Entering the world of property management can be an excellent financial decision. By leveraging your real estate investment, you can earn a steady source of income. At the same time, operating a property management company comes with risks. By forming a rental property limited liability company (LLC) in Tennessee, you can maximize the benefits of your investment property while limiting your liability.
The benefits of forming an LLC are immense for a fairly low cost. When you use our services to form a Tennessee LLC, we can make the process quick and easy. And after formation, our other products and services can help you achieve your business goals.
The first benefit of LLCs is that they provide personal liability protection for their owners (also called members). Owning a rental property in Tenessee comes with some risks, and using an LLC structure can help insulate you from the personal liability risks.
The next benefit that LLCs offer is tax-related. Unlike corporations and sole proprietorships, LLCs allow for “pass-through” taxation. LLC revenues are not subject to corporate tax rates. Instead, with pass-through taxation, an LLC owner pays taxes only once, at the personal level.
Finally, the personal assets of LLC owners are clearly separated from the property of the LLC. The separation of business and personal property provides both legal and financial protection to the LLC owners.
Tennessee law also provides for series LLCs. Series LLCs allow real estate investors (and other business owners) in Tennessee to further divide the interests, assets, and activity of one operation into different sub-groups or “series.” Each series is considered a separate entity, with its own name, financial assets, and bank accounts. The most important advantage of a series LLC is that each series within the LLC is individually protected. This means that the assets of each series are shielded from any liability that stems from the activity of another series. A series LLC arrangement can be particularly helpful for real estate owners with multiple properties.
Your property might also qualify for the FONCE franchise and excise tax exemption in the state, which has two criteria:
It’s critical that you understand the three key benefits of an LLC before you create your rental property LLC in Tennessee.
If you’re prepared to form a Tennessee rental property LLC, check out our Tennessee LLC formation service.
However, you’ll need to take care of two additional issues if you obtained your rental property before forming the LLC. First, you’ll need to draft and file an updated deed showing the LLC as the property owner. Generally, you’ll want to file this deed with the local land records office. Second, be prepared to pay a tax when transferring Tennessee rental properties into your LLC.
Also, make sure your lender is aware of the ownership change if you have financing on the rental property. Your lender might require you to complete additional documentation as you make the transfer. The transfer may also affect the financing terms and loan interest rate.
Finally, if you are a property manager with tenants or renters, inform them of the upcoming transfer. Ensure all leases and rental agreements show that the LLC owns the property so that you can continue to earn rental income.
It’s always a good idea to separate your personal assets from your business assets. For that reason alone, most property owners are wise to create a Tennessee real estate LLC. Starting a Tennessee real estate LLC is especially ideal for property managers that want to eventually expand their rental business and have multiple rental units.
If you’ve decided to establish an LLC for a rental property in Tennessee, the ideal approach is to form the LLC first before acquiring rental property. By forming the LLC first, you can purchase the rental property as the LLC rather than yourself. This can help prevent additional paperwork down the road. Also, as a commercial real estate buyer, you may obtain better financing interest rates and terms.
If you buy the investment property first and then create the LLC, be prepared for extra paperwork. First, you’ll have to transfer the rental properties from your ownership to the LLC. To do this, you’ll need to file a deed with the local land records office. Also, remember that you might trigger a tax event when you transfer your rental property to the LLC. Finally, transferring the property from your personal ownership to the LLC may impact your current financing arrangement.
No matter what stage your business is at, we’ve got resources for your needs. Maybe you want to streamline property management, form a real estate property LLC, or stay in compliance with state laws. Whatever your situation, we can help take your business to the next level. From forming a Business Plan to providing help with Worry-Free Compliance, we can give your business the boost it needs.
Tennessee LLC for Rental Property FAQs
There are several advantages to creating a rental property LLC, including favorable tax treatment and personal liability protection. By owning a rental property LLC in Tennessee, you can also attract real estate investors and make it easier to obtain financing.
Rental property owners typically use a nearby street or the property’s actual address for the name. Examples include “9784 West Street LLC” or “Highland Park Street LLC.” However, you can choose any name that isn’t taken and adheres to state law.
If your LLC is conducting business in any state other than the state where you formed it — in this case, Tennessee — then you are likely required to register your business in those states. It’s always best to check with your home state authorities about the local rules to verify that you don’t need to register.
Disclaimer: The content on this page is for information 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.
Written by Team ZenBusiness
ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.
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