Holding a Rental in an LLC vs. Your Own Name in California
Holding a California rental in an LLC can separate the property’s debts and lawsuits from your other assets, but it costs at least $800 a year in state tax, can put your loan’s due-on-sale clause in play, and changes how the property is taxed and insured. Keeping title in your own name, or in a revocable living trust, is cheaper and simpler, and some small landlords rely on insurance rather than an entity for protection. Neither choice is right for everyone.
This page sets out the trade-offs for owners of single-family rentals, condos and small multifamily buildings in the North Bay: what the LLC statute does and doesn’t protect, the Franchise Tax Board charges, what happens to your property tax base, the lender and title questions, and the AB 1482 exemption that an LLC can cost you. It ends with questions to take to your attorney and CPA.
What an LLC protects, and what it doesn’t
California’s LLC statute is in the Corporations Code, and section 17703.04 says the company’s debts, obligations and liabilities, whether they arise in contract, tort or otherwise, are solely the LLC’s. A member is not liable for them just because they are a member or manager.
The same section sets the limits. A member is still exposed under the common law of alter ego, the doctrine courts use to disregard an entity that is not kept genuinely separate. And the statute does not shield a member from liability for their own participation in tortious conduct, or under a written guarantee they signed.
That last point matters in practice. A lender that lends to an LLC will often ask the members to guarantee the loan personally, and the guarantee survives the entity. The statute does say that skipping meetings is not by itself evidence of alter ego, unless the articles or operating agreement require meetings.
Keeping the shield intact usually means a separate bank account, leases and contracts signed in the LLC’s name, adequate insurance and capital, and no mixing of rent with personal funds.
The $800 tax and the LLC fee
The Franchise Tax Board says every LLC doing business or organized in California pays an annual tax of $800, due by the 15th day of the fourth month of its tax year, with the first year’s payment due by the 15th day of the fourth month after it files with the Secretary of State. The rule covers every LLC, so a single-member LLC that is disregarded for federal income tax still pays it. The first-year exemption that applied to LLCs formed in tax years 2021 through 2023 has ended.
An LLC whose total California income exceeds $250,000 also owes a fee, estimated on Form FTB 3536 by the 15th day of the sixth month of the tax year. The FTB’s table, as of its page updated March 5, 2026:
| Total California income | LLC fee |
|---|---|
| $250,000 to $499,999 | $900 |
| $500,000 to $999,999 | $2,500 |
| $1,000,000 to $4,999,999 | $6,000 |
| $5,000,000 or more | $11,790 |
The fee is measured by total California income as the FTB defines it, which is not the same as net profit, so ask your CPA how your rents count. Add the annual Form 568 return and, for most owners, a separate bank account and bookkeeping. On a single rental producing modest rent, those costs are a real share of the return; run them through your rental property analysis before forming anything.
Property tax: deeding a rental into an LLC
A deed from you to your LLC is a transfer, so the question is whether it reassesses the property under Proposition 13. Revenue and Taxation Code section 62(a)(2) treats a deed between individuals and an entity as no change in ownership when it “results solely in a change in the method of holding title” and each owner’s proportional interest in every property transferred stays the same.
So a sole owner deeding to a single-member LLC, or spouses who own a rental 50/50 deeding to an LLC they own 50/50, can usually transfer without reassessment. Adding a new member, or changing the percentages in the same step, breaks the exclusion.
The exclusion has a consequence. Under section 64(d), the owners right after an excluded transfer become “original co-owners,” and if they later transfer, cumulatively, more than 50% of the interests in the LLC, the property is reassessed. Separately, anyone who gains more than 50% of an LLC’s capital and profits triggers a change in control under section 64(c). The State Board of Equalization requires Form BOE-100-B within 90 days of a change in control or ownership. Our guide to California property tax for investors works through examples, and our portfolio disposition guide explains how a buyer of LLC interests is treated.
Your loan and the due-on-sale clause
Most owners of a financed rental forget this until after the deed records. Many residential loans include a due-on-sale clause. Under the Garn-St Germain Act’s definition, that clause gives the lender the option to demand full repayment if any interest in the property changes hands without its written consent.
The Act lists transfers on homes of fewer than five units for which a lender may not enforce the clause, including transfers to a spouse or children, transfers on death or divorce, and transfers into an inter vivos trust in which the borrower is and remains a beneficiary. A transfer to an LLC, corporation or partnership is not on that list.
That doesn’t mean every lender will call the loan, but it means the lender can. Ask your servicer in writing before you deed the property, and get any consent in writing. If you are buying, decide on the vesting before you apply: our planned guide to DSCR loans in California covers one loan type investors use when buying in an entity’s name.
AB 1482: the exemption an LLC can cost you
California’s statewide rent cap, Civil Code section 1947.12, exempts a single-family home or condo that can be sold separately from any other unit. The exemption is closed to REITs, corporations and LLCs with at least one corporate member, and it also depends on giving the tenant a written exemption notice. The just cause statute, section 1946.2, has a parallel exemption.
An LLC whose members are all individuals or trusts keeps the exemption, as long as the notice is given. Put a corporation in as a member, or hold the house in a corporation, and the home becomes subject to the rent cap and just cause rules. The statute is set to repeal on January 1, 2030. Our guide to AB 1482 for landlords explains the notice and the 2026 cap.
Insurance and title insurance
Insurance is the first line of defense whichever way you hold title. When title moves to an LLC, the LLC needs to be the named insured on the property policy, and your umbrella policy should be checked to see whether it covers property owned by an entity. Ask your agent before the deed records, not after a claim.
Your owner’s title insurance policy was issued to you. Whether it continues to protect an LLC you deed the property to depends on the policy form and its terms, so ask the title company that issued it whether coverage continues or an endorsement is available. Our title insurance guide explains the policy types.
LLC, personal name or living trust: a comparison
| Issue | Your own name | Revocable living trust | LLC |
|---|---|---|---|
| Liability for property claims | Your assets are exposed beyond insurance | Same as your own name | Generally limited to the LLC’s assets, subject to alter ego and guarantees |
| California entity tax | None | None | $800 a year, plus the fee above $250,000 of total California income |
| Reassessment on transfer | Not applicable | Section 62 has a separate trust exclusion; confirm with the assessor | Excluded if proportional interests stay the same; original co-owner rule follows |
| Due-on-sale clause | Not an issue while you own it | Garn-St Germain lists trusts where the borrower remains a beneficiary; ask the lender how that applies to a rental | Entity transfers are not on the protected list |
| AB 1482 single-family exemption | Available with notice | Available with notice | Lost if any member is a corporation |
| Probate avoidance | No | Yes, for assets in the trust | Depends on who holds the membership interests |
Some owners combine the two, with the LLC owned by their living trust. How a trust holds and sells property is covered in selling a house in a trust.
Questions to bring to your attorney and CPA
- Given my insurance, what claims would an LLC actually protect me from that an umbrella policy wouldn’t?
- Will my lender consent to the transfer, and will I have to sign a guarantee?
- Does the deed qualify for the proportional interest exclusion, and how do I track later transfers of interests?
- Will the home lose its AB 1482 exemption under the membership I’m planning?
- What will the $800 tax, any LLC fee, Form 568 and bookkeeping cost each year?
- How does the LLC fit with my estate plan and any future 1031 exchange?
- Does my title policy continue, and does my insurance name the right owner?
If you use a property manager, the management agreement should name the owner of record. Our Sonoma County property management page explains how Diamond manages some rentals itself and works with partner managers for others. Diamond may refer you to partners we work with; you’re free to choose any provider.
Questions people ask
Should I put my rental property in an LLC in California?
It depends on your exposure, insurance, loan and number of properties. An LLC can limit liability for property claims, but it costs at least $800 a year, may conflict with your loan’s due-on-sale clause and needs separate books. Some owners of a single rental rely on landlord and umbrella insurance instead.
Does transferring my rental to an LLC trigger a property tax reassessment?
Usually not, if the owners’ proportional interests stay exactly the same, under Revenue and Taxation Code section 62(a)(2). The transferors then become original co-owners, and a cumulative transfer of more than 50% of the LLC’s interests later reassesses the property.
How much does a California LLC cost each year?
The annual tax is $800, and an LLC with more than $250,000 of total California income also owes a fee from $900 to $11,790, per the Franchise Tax Board. Add accounting for the Form 568 return.
Can my lender call the loan if I deed the rental to my LLC?
It can if the loan has a due-on-sale clause, because the Garn-St Germain Act does not list transfers to an LLC among those protected. Ask your lender for written consent first.
Does an LLC affect the AB 1482 exemption for a single-family rental?
Only if a corporation is a member. Homes owned by REITs, corporations or LLCs with a corporate member can’t use the exemption, and every exempt owner must also give the tenant the written notice.
Does an LLC protect me if I’m sued?
For the LLC’s own debts and liabilities, generally yes, but not for your own wrongful conduct, not for loans you personally guaranteed, and not if a court treats the LLC as your alter ego.
Nothing here is legal or tax advice. How to vest a rental is a decision to make with a California real estate attorney and a CPA, before you sign a deed or a loan application.
If you’re buying a rental and deciding how to take title, or restructuring several properties before a sale, talk with Diamond and we’ll coordinate the real estate side with your advisers. More guidance for owners is on our investor services page and our Sonoma investment property guide.
Sources & notes
- California Public Law: Corporations Code section 17703.04 (liability of members and managers)
- Franchise Tax Board: Limited liability company (annual tax and LLC fee), updated March 5, 2026
- California Public Law: Revenue and Taxation Code section 62
- California Public Law: Revenue and Taxation Code section 64
- California State Board of Equalization: Legal Entity Ownership Program (BOE-100-B)
- Cornell Legal Information Institute: 12 U.S.C. 1701j-3 (Garn-St Germain, due-on-sale clauses)
- California Public Law: Civil Code section 1947.12 (rent cap exemptions)
Last reviewed October 2026 by Matthew Martinez.
