Disregarded Entity LLC State rules and a rental in the LLC
The IRS may disregard your LLC, but your state still sees it. Here's what the state expects, and how a rental inside the LLC is taxed.
Federal tax and your state are separate
Your state certificate created the LLC. The IRS classification decides how its profit is taxed. One does not cancel the other: a disregarded LLC is still a company in good standing with the state as long as it keeps up its state filings.
Most states expect an annual or biennial report and a registered agent. Some states charge an annual fee or franchise tax on the LLC itself. Texas, for example, treats a one-member LLC as a taxable entity for its franchise tax, even though the IRS disregards it.
If your state sent a notice, bring it to the call. We'll put the state dates next to your federal ones so nothing gets missed.
A rental held in a disregarded LLC
Many owners put a rental property in a one-member LLC and keep it disregarded. The rent still goes on Schedule E of your return, with the same repairs and depreciation you'd have if you held the property in your own name.
Here's a made-up example. Sam's LLC owns one rental house. It collects $24,000 of rent in a year and has $9,000 of expenses plus $7,000 of depreciation. Sam reports $8,000 of rental income on Schedule E. No self-employment tax applies to that rent. Your numbers will differ.
Property that has gone up in value is usually best kept out of an S corporation, because moving it out later can bring a tax bill. Staying disregarded keeps that option simpler. If you're about to buy or retitle a property, talk with us and your lawyer before the closing.
Keep the purchase papers and the receipts for improvements. They prove your basis, which sets your depreciation and the tax when you sell. We help you build that file if it's missing.
Questions about the state side
Does disregarded mean my LLC was dissolved?
No. Dissolved and forfeited are state terms about the company's standing. Disregarded is only the federal income tax treatment. Your LLC can be active with the state and disregarded by the IRS at the same time.
Should I deed my rental into the LLC?
That is a legal and lending question first, so check with your lawyer and your lender. We can show you how the rental would be taxed in the LLC, and what an S corp election would make harder later.
Which papers help on the call?
Your state certificate, last year's return, and any state notice you received. The form on this page only needs the company name.
Ask about your state or a rental
Tell us your state and whether the LLC holds a rental. Both get answered on a free 30-minute call with Steven.
You will be talking to the Steven Palmieri practice.