To create an LLC for a rental property, you file Articles of Organization with your state, get a federal EIN, open a business bank account in the LLC’s name, and then deed the property from yourself into the new company. Most owners finish formation in a few days for a few hundred dollars. The step that trips people up is the mortgage: if there’s a loan on the property, transferring the deed without the lender’s consent can trigger a due-on-sale clause.
Pick a Name and a Registered Agent
Your LLC needs a name that’s distinguishable from every other entity already on file with the state, or the Secretary of State will reject the filing.1U.S. Small Business Administration. Choose Your Business Name – Section: Register Your Business Name to Protect It The name has to include a designator like “LLC” or “Limited Liability Company.” Something plain works well. “123 Oak Street LLC” or “Sunrise Properties LLC” won’t box you in later if you buy another property.
You also need a registered agent before you file. That’s a person or service with a physical street address in the state of formation, available during business hours to accept legal papers for the company. You can serve as your own agent, but many landlords pay a commercial service (roughly $50 to $300 a year) to keep their home address off public records and avoid missing a lawsuit while on vacation.
File the Articles of Organization
The LLC legally exists once the state approves a document called the Articles of Organization. Some states call it a Certificate of Formation. The form is short. It asks for the LLC’s name, the registered agent’s name and address, the organizer’s signature, and sometimes whether the company will be managed by members or by a designated manager.
Filing fees run from under $50 to over $500 depending on the state. Most states accept online filings, and approval comes back as a stamped copy or certificate. Keep that document somewhere you can find it. Banks, insurers, and the title company will all ask to see it.
Write an Operating Agreement
The operating agreement is the LLC’s internal rulebook. It sets out who owns what percentage, how rental profits and losses are divided, and what happens if a member wants out or the owners disagree.2U.S. Small Business Administration. Basic Information About Operating Agreements For a single-member LLC holding one rental, the document can be short. Multi-member LLCs need to cover voting rights, buyouts, and capital calls for things like a new roof.
Most states don’t require you to file the operating agreement with any government office. It lives in your records. Don’t skip it anyway. When courts decide whether to respect an LLC’s liability shield, they look at whether the company operates with real structure, and a signed operating agreement is one of the clearest pieces of evidence that you’re running a genuine business.
Get an EIN and Open a Business Bank Account
After the state approves the LLC, apply for an Employer Identification Number on the IRS website. The EIN is the business’s version of a Social Security number. The application asks for the responsible party’s SSN, the LLC’s legal name, and its mailing address, and the number is issued at the end of the session.3Internal Revenue Service. Get an Employer Identification Number
Take the EIN, your filed Articles of Organization, and your operating agreement to a bank and open a dedicated business checking account.4U.S. Small Business Administration. Open a Business Bank Account – Section: Get Documents You Need to Open a Business Bank Account Every dollar of rent goes into this account. Every property expense comes out of it. This is where most rental LLC owners either protect themselves or quietly dismantle their liability shield. Paying personal bills from the LLC account, depositing rent into your personal checking, or covering repairs out of pocket without reimbursing yourself all count as commingling. Courts treat commingling as evidence that the LLC isn’t really separate from you, and that’s the opening for holding you personally liable.
Transfer the Property Into the LLC
Once the LLC has an EIN and a bank account, move the title from your name into the company’s name. That requires signing a new deed, usually a quitclaim or warranty deed, that names the LLC as the grantee. The deed has to include the full legal description of the property (copied from your existing deed, not the street address) and be signed before a notary. You then record it with the county recorder’s office. Recording fees generally run between $10 and $115 depending on the jurisdiction and the length of the document.
Tax Basis and Property Tax Reassessment
Contributing property to an LLC taxed as a partnership or disregarded entity is generally not a taxable event at the federal level. The tax code provides that no gain or loss is recognized when you contribute property to a partnership in exchange for a partnership interest.5Office of the Law Revision Counsel. 26 USC 721 – Nonrecognition of Gain or Loss on Contribution The LLC inherits your existing cost basis. No step-up, but no tax on appreciation either.
Property tax reassessment is a separate question handled at the county level. Many jurisdictions won’t reassess when the real beneficial owner hasn’t changed, but the rules vary. Call your county assessor before you record the deed. Some counties require you to file an exemption claim to avoid reassessment, and missing that filing can produce a surprise tax bill.
Title Insurance
Your existing owner’s title insurance policy was issued to you personally, not to the LLC. Transferring the deed may void the coverage. Contact your title insurer before you record the new deed and ask whether the policy follows the property automatically, whether you need an endorsement, or whether a new policy is required. Fixing this after the fact is expensive.
Deal With the Mortgage Before You Transfer
If there’s a loan on the property, this is the step to handle carefully. Most mortgages contain a due-on-sale clause letting the lender call the full balance due if the property is transferred without written consent. Federal law defines the clause broadly: the lender can accelerate the loan whenever “all or any part of the property” is “sold or transferred without the lender’s prior written consent.”6Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions
Congress carved out exceptions where lenders cannot enforce the clause: transfers to a spouse or children, transfers at the borrower’s death, and transfers into a living trust where the borrower remains the beneficiary.6Office of the Law Revision Counsel. 12 USC 1701j-3 – Preemption of Due-on-Sale Prohibitions Transfers to an LLC are not on that list. Your lender has the legal right to call the loan due when you deed the property into an LLC.
In practice, many lenders don’t enforce the clause as long as the borrower stays personally involved and payments keep arriving on time. “Probably won’t” is not the same as “legally can’t.” If the lender does call the loan, you’d be looking at a demand for the full remaining balance. The safer path is to call the lender before you record the deed, explain what you’re doing, and ask for written consent. Some grant it. Others refuse or require you to refinance in the LLC’s name as a commercial loan, usually at a higher rate.
Update Your Insurance
After the deed is recorded, your landlord insurance policy needs to name the LLC as the insured. If a tenant files a claim or the building burns, the insurer can deny coverage when the named insured on the policy doesn’t match the entity that owns the property on title. Call your insurer, give them the LLC’s legal name and EIN, and have the policy reissued or endorsed.
How a Rental LLC Is Taxed
The IRS doesn’t have a separate tax category for LLCs. It assigns a default based on how many members the LLC has, and you can elect a different treatment if it fits your situation.
- A single-member LLC is treated as a “disregarded entity.” It doesn’t file its own return. Rental income and expenses go on Schedule E of your personal Form 1040, exactly as they would if you held the property in your own name.7Internal Revenue Service. 2025 Instructions for Schedule E (Form 1040)
- A multi-member LLC is treated as a partnership by default. The LLC files Form 1065 and issues a Schedule K-1 to each member, who reports the K-1 numbers on a personal return.
- Any LLC can elect to be taxed as a C corporation on Form 8832 or as an S corporation on Form 2553. For most rental owners, the default pass-through is simpler and avoids double taxation. Talk to a tax professional before electing corporate treatment because the switch is hard to undo.8Internal Revenue Service. About Form 8832, Entity Classification Election
Forming the LLC doesn’t change how much tax you owe on the rental. It changes who holds the legal liability.
Keep the LLC in Good Standing
Filing the paperwork creates the LLC. Maintaining it is what keeps the liability protection in force. Most states require an annual or biennial report along with a fee that ranges from under $10 to several hundred dollars. Some states charge a franchise tax or an annual minimum tax regardless of whether the LLC made any money. Miss these filings and the state can administratively dissolve your LLC, which means the entity ceases to exist and the protection disappears with it.
Courts also look at how the LLC is actually run when deciding whether to “pierce the veil” and hold the owner personally responsible. The common red flags:
- Commingling funds. Mixing personal and business money in the same account, or paying LLC expenses out of pocket without reimbursement.
- Treating LLC property as your own. Using rent money for personal purchases, or letting friends stay at the rental without a lease.
- No real records. No meeting minutes, no written resolutions for major decisions, no basic bookkeeping.
- Undercapitalization. Setting the LLC up with no money to operate on, then using personal funds for everything.
- Personally doing hands-on work on the property. Acting as your own contractor can blur the line between you and the LLC, particularly if someone is injured.
No single factor guarantees a court will pierce the veil. Stack a few, though, and the LLC starts looking like a name on a piece of paper rather than a working business. Treat it the way you’d treat a company you don’t personally own: pay it, bill it, document decisions, and keep the finances clean.