I’m a newbie here and had a question about setting up my real estate investment business. I’d like to set it up in Delaware or Nevada for the liability/tax reasons, but I will probably be investing mostly in Virginia.
I was reading about registering a foreign LLC, which is required if you are “transacting business”, but the law says that there are specific exceptions, including:
Creating or acquiring indebtedness, deeds of trust, and security interests in real or personal property;
Securing or collecting debts or enforcing deeds of trust and security interests in property securing the debts;
Owning, without more, real or personal property;
I saw this similar language for a few other states as well. So my questions are:
Does that mean that if I have a LLC registered in Delaware or Nevada, I do not have to register in Virginia?
I am sure my friend BLL will weigh in on this one once he see's it!
If you are strictly just buying the property and placing it in your Nevada or Deleware LLC, this is perfectly ok providing you do not do any business within that state, this being said you would hire a property management company who manages the property, collects rent, pay’s utility bills and provides maintence or contracts subtrades for your benefit. You can not do anything that infers you do business in that state.
Now there is no tax benifit in Virginia as your Nevada / Deleware LLC would still have to file a tax return in Virginia and pay state taxes on earned income (Your net income after all cost’s but before state and federal taxes) and I of course presume you realize you have to pay Federal taxes.
Now your benefit comes in only if your going to keep a large cash reserve in say Nevada and you were going to put the money into a CD, this income would then be state (Nevada) tax free, and of course pays Federal taxes.
This is more of an asset protection strategy rather than a tax strategy, and my friend BLL will recomend that you don’t bother with a corporate entity and just buy your self a large liability insurance policy and an umbrella policy to protect your assets and buy and place the properties in your name.
If you are just doing a hand full of properties then I would agree with BLL to just buy in your name and get good insurance or if you really believe you would be better served with a corporate entity then file one in Virginia.
I think personally the only reason to move legal entities into a protection / tax advantage state is with the goal of establishing an estate and trust there!
The LLC needs to be registered in VA as buying and selling is considered business activity. Most tax authorities work under the premise that managing it from in state creates a nexus for tax reporting, which means it needs to be registered in state. Given the current economy, most states look for the flimsiest excuse to tax. Another point to consider is that the LLC does not have protection of VA laws or courts unless it is registered and you, as the incorporator, will be personally liable for any LLC debt.
From an asset protection standpoint, your local judge has authority over you. He can’t order a NV or DE bank to turn over assets to a VA creditor, but he can put you in jail until you do. Your other choice is to become a fugitive from justice. Don’t underestimate this power. Creditors have forced debtors to pay up using it.
GR brings up a good point about movable assets. Investment income earned from an entity outside of VA is not subject to VA taxation. It may or may not be worth it since you will incur annual fees for registration and the registered agent. Be aware that VA does not recognize the asset protection trust of any other state.
Buying rental property is “doing business” but what about just buying a house with a Nevada Crop for use of an officer of that Corp?
Or buying anything for the Corp like a car?
Also about having CDs and investments for the Nevada Crop., can a person set up a bank account in Virginia in the Nevada Corps. name and have those CDs interest protected from Virginia income tax?