The honest answer: it depends on 3 factors. Here's how to decide in 10 minutes, without paying a lawyer.
Quick Take
An LLC doesn't make you lawsuit-proof. But it does create a legal separation between your rental income and your personal assets — and that separation is worth $500 in filing fees many times over.
Ask yourself: 1) Do I have more than one rental property? If yes, LLC makes sense.
2) Is my rental worth more than $200K, OR do I have significant personal assets to protect? If yes, LLC.
3) Am I self-managing (no property manager)? More direct tenant interaction = more liability = stronger case for LLC.
An LLC (taxed as a pass-through by default) doesn't change your tax rate. Your rental income still flows to your personal return on Schedule E. BUT — an LLC that elects S-corp status (when income exceeds ~$40K/year) can save you $3,000-$8,000/year in self-employment tax. That's the real reason to do it, and it's completely legal.
| State | Filing Fee | Annual Fee |
|---|---|---|
| Texas | $300 | $0 |
| Florida | $125 | $138/yr |
| California | $70 | $800/yr |
| New York | $200 | $25+/yr |
Wyoming ($100 filing, $0 annual, strong privacy laws) is worth considering if you own rentals in multiple states.
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