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CA LLC question

February 07, 2017 • Anonymous • Log In to Post Comments

If a CA single member LLC purchase rental property out of state, and that member subsequently moves to another state and sells the property later, what, if anything will CA require tax-wise on the sale of that property?  I don’t think any income tax on the property, but what about gross receipts on the sale?  Is there a tax issue I am not seeing here?

And then what if the CA resident/SMLLC just purchases a rental property under a TX LLC?  I know that there is a member managed filing requirement for the $800, but does the SMLLC have to file with the SOS?  Or just pay the $800 on the Form 568 and the SOS will assign a number?

This issue arose because my client wonders if it would just be easy to purchase out of state rental property under a CA LLC vs. having an out of state LLC and a foreign CA LLC.


Comments

  1. Unless there is some California source income from the property sale there would be no income or gross receipts tax on the property sale if the member moves out of state prior to the sale. However, the LLC would still owe the $800 min tax until they dissolve the entity because they are a CA entity.
  2. They would probably want to form a TX LLC, not a CA entity. This is actually something we recommend for people who may later leave CA (see our article “California requirements for LLCs registered in other states” at http://www.caltax.com/research/california-taxletter/2012/03/california-requirements-for-llcs-registered-in-other-states). Forming the TX LLC would avoid them having to dissolve the entity to stop the minimum tax.  However they would still need to register with CA for liability protection as a foreign LLC (and pay the $800 annual tax until they cancel the registration). Then they just cancel that registration when the resident moves out of state.
  3. You may also want to consider if an LLC is the best way to hold the property.  See our article “Think twice before forming an LLC”  https://www.caltax.com/research/california-taxletter/2014/09/think-twice-before-forming-an-llc

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