This is general information, not legal or tax advice. Entity law is state law, and courts differ on how far an LLC protects its owner. Use this to prepare questions for a real estate attorney and a CPA who know your state.
Small landlords hold rentals in one of three ways: in their own name, in a limited liability company, or with partners. None is right for everyone. The choice trades a little money and paperwork for some protection, and it changes how you borrow.
The three ways, side by side
| Your own name | Single-member LLC | Partnership, or LLC with partners | |
|---|---|---|---|
| Who owns the deed | You | The company | The partnership or company |
| Claim against the rental reaches | Everything you own | Mostly the company’s assets | Partnership: every partner. LLC: mostly the company |
| Federal income tax | Schedule E | Schedule E (ignored by default) | Partnership return, Form 1065 |
| Yearly cost | None | State fees, registered agent | State fees, a separate tax return |
| Conventional mortgage | Yes | Generally no | Generally no |
As a sole owner you are the lessor on every lease, and a judgment against the rental is a judgment against you. That is the whole case for a company.
What an LLC protects, and what it does not
An LLC separates the rental’s debts from yours. Suppose a guest is badly hurt on a stairway and wins $450,000 against the owner. With a $300,000 liability policy, the insurer pays the first $300,000. If the LLC owns the building, the rest is collected from the company’s assets. Your house and savings are normally out of reach. In your own name, they are not.
Three limits matter:
- Your own negligence is still yours. If you personally fixed the railing badly, the claimant can sue you as well as the company.
- Courts can ignore a sloppy company. Mixing rent with personal money, skipping the company’s own bank account, or signing leases in your own name gives a court reason to “pierce the veil.” Keep separate books from the first day; our guide to bank accounts for investors covers the setup.
- One LLC puts all its rentals in one basket. A claim against one house can reach the other two houses the same company owns. Some owners use one company per property; others accept the risk and buy a larger umbrella.
Insurance does most of the work either way. The guide to landlord insurance coverages explains the liability and umbrella layers. An LLC answers the claim that exceeds them.
Taxes: usually a wash
The IRS treats a single-member LLC as disregarded: it is ignored for income tax, and you report the rental on Schedule E as before. An LLC with two or more members is taxed as a partnership by default. It files Form 1065 and gives each partner a Schedule K-1.
Rent from real estate is generally not subject to self-employment tax unless you provide substantial services, as a hotel or boarding house does. That is why the S corporation election, which some businesses use to cut self-employment tax, rarely helps a landlord. An LLC can make that election on Form 2553, but talk to a CPA first: moving a property back out of an S corporation later can create a tax bill.
Depreciation, repairs and the passive loss rules work the same in every structure. The 10 rental tax mistakes apply whether the deed names you or a company.
Partners: the structure most likely to go wrong
Two friends who buy a duplex together without forming a company have probably formed a general partnership. Under the partnership acts most states have adopted, partners are liable jointly and severally for the partnership’s obligations. A creditor can collect the whole debt from either partner, not half from each.
An LLC with two members avoids that, and its operating agreement is where the hard questions get answered in advance: who puts in how much, who manages, how profits split, what happens if one partner wants out or dies, and who decides on a sale. Write it before the purchase, while everyone agrees.
Loans and the due-on-sale question
Conventional mortgages sold under the national guidelines go to natural persons; loans to corporations, partnerships and LLCs are not eligible. So many landlords buy in their own name and then deed the property to an LLC. That is where the due-on-sale clause comes in.
Most mortgages let the lender demand the full balance when the property changes hands. The federal Garn–St Germain Act bars lenders from enforcing that clause on some transfers of homes with fewer than five units, including a transfer into a living trust in which the borrower stays a beneficiary. A transfer to an LLC is not on the list. Lenders do not always enforce it, but that is their choice, not your right.
Before you record a new deed:
- Ask the lender, in writing, whether it will consent.
- Ask your title insurer whether the owner’s policy follows the property into the LLC, or whether you need an endorsement.
- Change the named insured on the landlord policy to the LLC. A claim against a company the policy does not name is a fight you do not want.
What an LLC costs to keep
Formation and annual fees vary by state. California is the high example: every LLC doing business or organized there owes an $800 annual tax, due even in a year with no income, plus a separate fee once total income passes $250,000.
A house rents for $2,100 a month. Allow 5% for vacancy, then pay $3,360 of property tax, $1,800 of insurance and $2,100 of repairs a year. The NOI calculator shows $16,680 of NOI.
Add the $800 as its own line and NOI falls to $15,880, about 4.8% of the property’s income. On a $325,000 value, the cap rate drops from 5.1% to 4.9%.
Add a registered agent if you do not use your own address, a separate bank account, and in a multi-member LLC a partnership return each year. One cost has gone away: since FinCEN’s August 2026 final rule, companies formed in the United States do not file beneficial ownership reports.
Series LLCs
Some states let one LLC hold separate “series,” each with its own assets and debts. Delaware’s statute says a series’ debts can be enforced against that series’ assets only, provided the operating agreement sets it up, the certificate of formation gives notice, and each series keeps separate records. Not every state has such a law, and courts elsewhere have little history with them, so ask before you rely on the wall between series.
A simple way to decide
- One rental, modest equity, no partners: your own name, a landlord policy and an umbrella is a common, defensible start.
- Several rentals, real equity, or a partner: an LLC, often one per property or per few properties, with its own bank account and books.
- Hiring a property manager: the management agreement should name the entity that owns the property.
Whatever you choose, run it the same way every month. The structure only protects what you keep separate.
Questions people ask
Do I need an LLC for my first rental?
No law requires one. Many first-time landlords hold one rental in their own name with a landlord policy and an umbrella, then form an LLC when they add properties, take on a partner or build real equity. Ask a local attorney what your state’s courts actually protect.
Will putting my rental in an LLC lower my taxes?
Usually not. A single-member LLC is disregarded for federal income tax, so the rental stays on your Schedule E exactly as before. Some states add a yearly fee or tax: California charges every LLC at least $800 a year.
Can my lender call the loan if I move the rental into an LLC?
It can. Most mortgages let the lender demand full payment when the property is transferred, and the federal exemptions cover transfers such as a living trust or a spouse, not an LLC. Ask the lender in writing before you record a new deed.
Written by LoomLease editors. Published September 30, 2026. Plain English, not legal, tax or financial advice: your lease, your state’s law and a professional who knows your situation decide what applies.