Texas Series LLC - State ID and Federal Tax ID

General Real Estate Investing
1

Hello All,

If any of you have a series LLC. I am trying to understand it from a tax perspective when filing taxes. Correct me if I am wrong, but here is how I understand the Series.

Parent LLC

  1. Child series A - Rental Property in Houston
  2. Child series B - Rental Property in Austin
  3. Child series C - Rental Property in Dallas

My question is based on the series setup above.

  1. How many State (TX) Franchise ID?
    a. The Parent LLC file ONLY
    b. The Series (children) only.
    c. Both the Parent LLC and each child series will file for unique franchise IDs.
  2. How many Federal Tax ID numbers do I need?
    a. One for the Parent LLC ONLY.
    b. Each individual child series.
    c. Both the Parent LLC and each child series will get unique Federal Tax IDs (EIN)
2

my question to you is why would you have such a complicated set-up,how many rental properties do you have, and how are they financed?

3

I currently don’t have any. I’m about to buy one & finance it with me putting down 20%. At the exact same time, I have an uncle in another city that is going to literally give me a property that he owns and rents out. It’s fully paid for. He is 91 and wants to give it to me for Christmas.

So, I want a series LLC to protect each property from one another should a lawsuit occur. I also don’t want to keep paying the state filing fees over and over again.

4

Rob, I am involved with a whole bunch of Texas entities, including many LLCs - but I am not involved with a “series LLC”.

To my understanding, each entity has to make their filings to the secretary of state separately - irregardless to if or how they are related.

You do not need separate federal tax IDs, especially if they are single-member LLCs. If they are single-member LLCs, aka you own each one or you & your wife own each one, then just plan on using your social security number. It will make filing your own taxes at the end of the year a whole lot easier. Your social security number will not be released to the public, as you will get a unique “filing number” or something of the like with each LLC you setup. If you are involved with a partnership, I would get an EIN, but otherwise - don’t bother with it.

Also note you do NOT need a Texas sales tax permit.

But → personally I think you over over-complicating a rather simple situation. I would actually setup a single-member or other standard Texas LLC - and put up to 20 properties OR a total of $1mm in assets, in one single LLC. And I would have insurance on each individual property for $1mm and an umbrella insurance policy on top of that for 2-3x that amount. Also, keep your filings up to date (important), keep seperate checking accounts & financial records for each LLC - however all the LLCs can point to the same mailing address.

Also, don’t try to use a foreign (non-Texas…like a Nevada or Delaware) LLC in Texas, as you have to pay some huge fees just to transact business here. Ugh. Just stick with good ol’ Texas LLCs. LOL

So … with an LLC, and two levels of insurance, and minimal due diligence on your part, your personal assets & investment assets will be relatively safe. That advice was given to me by a Texas lawyer and a Texas insurance agent, both with lots of experience.

P.S. - here’s my disclaimer - talk to a licensed lawyer, insurance agent and a CPA to confirm everything I put above before engaging in any sort of business in Texas or forming an LLC. :wink:

5

you’ll need a gift tax return for Uncle’s property.

6

So do you not see any cost savings or asset protection benefit in a series LLC? Although I am new at this, Series LLCs sound less complicated, offer each property additional protection and saves state llc setup fees at the same time. BTW, They are relatively new for Texas, Sept 2009. Regardless, there are many links on this however, I am pasting what is stated in the follwing link below about the benefits of using them. Please see what this one time skeptic wrote about them.

http://www.usataxaid.com/ustaxaid-blog/3-reasons-a-series-llc-should-be-a-real-estate-investor’s-best-friend/

I’ve been working with the Series LLC for a few years now. During that time I’ve gone from being a skeptic to being an enthusiast.

For those of you wondering, a Series LLC is a regular LLC with a twist – it can have an unlimited number of subsidiaries (called Cells), and each subsidiary is treated as a separate structure where liability is concerned – if you set the structure up and run it properly. So far eight states have Series LLC legislation on the books (Delaware, Illinois, Iowa, Oklahoma, Nevada, Tennessee, Texas and Utah). But even if you don’t live or own property in one of those states, you can still use a Series LLC by qualifying it to do business in the state(s) where you want to operate.

I think this is perhaps the ideal structure for real estate investors (and anyone else) who wants to keep their assets safe without spending all the profit on legal structures.

Here are my 3 favorite reasons to use a Series LLC with real estate:

  1. Protection. It’s written into the legislation in each of the 8 Series LLC states. Do it right, and you have liability protection between each cell. So – if you’ve got a big portfolio, you can drop one or more properties into each cell and receive protection. Creditors on Cell 1 can’t come after the property in Cell 3, and so on. Under each state’s legislation, “doing it right” means properly documenting the creation of each cell. That means Resolutions at the main LLC level, establishing the Series Cell. It also means each Cell needs to have its own Operating Agreement, designating its own Managers and Members. Each cell needs to keep separate accounting records, get its own Tax ID number from the IRS, and maintain a separate bank account.

Something I’ve had a lot of people ask me is if they can establish 1 bank account for the main LLC, and then just show the transfers to the various accounts on the books. My feeling is no – that will be treated as comingling and will likely cause your liability protection to collapse. I tell my clients that operating a Series LLC is the same amount of work as operating a multitude of separate LLCs … with one big exception.

  1. Cost. Your reward for all that extra bookkeeping is a single structure fee, and a single resident agent fee. If your LLC is located in Nevada, you pay the state fees of $325 + one resident agent fee, no matter how many subsidiaries you have.

If you are operating in another state, the same would apply. Yes, you’d have two sets of fees (resident agent + annual filing fees), but contrast that to the costs of operating multiple LLCs. In a state like Massachusetts, for example, each LLC will cost you $500 + resident agent fees per year.

  1. Ease and Speed of Creation. Once you have the main LLC set up, creating subsidiaries is simple. It’s an internal process. No lawyers, no formation agents … just some documentation and 5 minutes on the IRS website to get a Tax ID number. Your cost = $0 if you do it yourself, and you’re done in less than an hour. If you want 1-hour service for a new LLC in Nevada or Delaware, you’ll pay $1,000 on top of all other fees … plus attorney or service-provider fees, which you can bet will be increased for such a fast turnaround.

These 3 reasons really just scratch the surface of the Series LLC’s possibilities. Diane and I will go through some more in our Coaching session later this month. There’s still time to get involved and join the program. If you act now, you’ll even get access to our May 11th session on legal and tax saving opportunities for your primary residence.