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CA resident buying rental property in IL

Asked by: John R  — 11 April, 2012

I reside in California but want to purchase rental property in Illinois. First, can the LLC be organized in IL to avoid paying the annual franchise tax fee of $800 in CA? Second, after I create an LLC in IL, and post purchase(s) of property in IL I assume that the rental income passes through to me if I am the only owner? Meaning I would claim the rental profit & depreciation on my yearly personal taxes? Do I need to notify California regarding the property income? 3) bank that makes all mortgage payments is in IL, however I reside in CA do I still owe a foreign entity tax of $800/year? Thanks again!

Answered by: admin  — 11 April, 2012

Dear John,

Since the property you purchase is in Illinois you actually need to register the LLC in IL (regardless of where you reside), since this LLC would be “doing business” in Illinois, and not in California.

Since the property will be held in an LLC, the rental income would pass to you directly, hence the LLC would have no obligation to be registered in California and pay the franchise tax (as long as the only business this LLC has is this rental property).

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