How to set up an LLC for your rental property in Illinois

If you're a landlord or real estate investor in Illinois, you may have heard that setting up an LLC for your rental property can be a beneficial move. But how exactly does that work? What are the steps, costs, and benefits? And is an LLC really the right choice for your rental business?

In this article, we'll walk you through how to set up an LLC for a rental property in Illinois, covering everything from the basics of LLCs to the specific Illinois requirements, filing fees, timelines, and ongoing obligations. We’ll also touch on how LLCs compare to other options like S corps and umbrella insurance, so you can make a more informed decision about what may be best for your rental investments.

What an LLC is and what it can protect landlords from

An LLC, or Limited Liability Company, is a popular business structure that combines some benefits of corporations and partnerships. For landlords, forming an LLC can provide a layer of personal liability protection. What does that mean? If someone sues your rental business or there’s a claim related to your property, your personal assets—like your home or savings—are generally shielded from being used to satisfy business debts or liabilities.

That said, an LLC doesn’t protect you from everything. For example, if you personally guarantee a loan, commit fraud, or fail to maintain the LLC as a separate entity, you could still be exposed personally. Also, an LLC won’t replace the need for solid landlord insurance policies. If you want to understand more about what an LLC protects you from and how it fits with insurance, check out our article on LLC vs umbrella insurance.

Step-by-step: how to set up an LLC for a rental property in Illinois

Ready to start your LLC? Here’s a straightforward guide to getting an LLC set up for your rental property in Illinois.

1. Choose a name for your Illinois LLC

Your LLC’s name must be unique and comply with Illinois naming rules. It should include “Limited Liability Company,” “LLC,” or “L.L.C.” and cannot be deceptively similar to other registered businesses. You can check name availability on the Illinois Secretary of State website.

2. File articles of organization with Illinois Secretary of State

The next step is to file the official formation document called the articles of organization. This is a simple form that provides basic information about your LLC, like its name, address, registered agent, and purpose. 

Illinois requires you to file articles of organization either online or by mail with the Secretary of State’s office. You can learn more about how to file articles of organization on their site.

3. Designate a registered agent in Illinois

Your LLC must have a registered agent with a physical address in Illinois who can receive legal documents and official mail on behalf of your LLC. This can be yourself, a trusted individual, or a professional service.

4. Create an operating agreement

Though not required by Illinois law, it’s highly recommended to draft an operating agreement. This internal document outlines ownership, management, and operational procedures for your LLC, helping prevent disputes and clarifying roles.

5. Apply for an EIN (employer identification number)

An EIN is like a Social Security number for your business. You’ll need it to open a bank account, file taxes, and hire employees if you ever do. You can get an EIN for your LLC for free through the IRS website. More on this below.

6. Register for Illinois state taxes (if applicable)

Depending on your rental activities, you may need to register for state taxes or permits. Most rental property LLCs won't have sales tax obligations but check with the Illinois Department of Revenue to be sure.

7. File annual reports and maintain compliance

Illinois requires LLCs to file an annual report and pay a fee to keep their status active. Keep track of these deadlines to avoid penalties.

How much does it cost to set up an LLC in Illinois?

When wondering how much does it cost to set up an LLC in Illinois, here’s the breakdown:

• LLC filing fee: The fee to file articles of organization is $150 if you file by mail or online.
• Annual report fee: Illinois requires an annual report with a $75 filing fee.
• Registered agent fees: If you use a professional registered agent service, expect to pay $100 to $300 annually.
• Operating agreement: If you hire a lawyer to draft this, it could cost several hundred dollars, but DIY templates are also available.

Overall, the upfront cost is fairly affordable compared to other states, but remember to budget for ongoing compliance expenses.

How long does it take to set up an LLC in Illinois?

Illinois processes LLC formation filings relatively quickly:

• Online filings are usually processed within 2-3 business days.
• Mail filings can take 7-10 business days or longer.
• Expedited services are available for an extra fee if you need your LLC formed faster.

Plan ahead so you can get your LLC established before closing on your rental property or starting business operations.

What are articles of organization and how to file articles of organization in Illinois?

The articles of organization is the foundational document that officially creates your LLC. It includes:

• LLC name
• Registered agent's name and address
• The LLC’s address
• Purpose of the business (often a general statement like “to engage in any lawful business”)
• Names of members or managers (optional in Illinois)

You file this document with the Illinois Secretary of State. You can submit it online through the Illinois business services portal or mail a paper form. Online filing is faster and more convenient.

Do I need a lawyer to start an LLC in Illinois?

Many landlords ask, do I need a lawyer to start an LLC? The answer is no—you don’t have to hire a lawyer to form an LLC in Illinois. The process is designed to be accessible for DIY entrepreneurs and investors.

However, if you want help drafting a detailed operating agreement, understanding specific tax implications, or navigating complex ownership structures, consulting a qualified attorney or tax professional is a good idea.

You may consider setting up the basic LLC yourself using the Secretary of State’s resources and forms, then seek professional advice if needed.

How to get an EIN for an LLC that owns rental property

Once your LLC is set up, you’ll want to get an EIN from the IRS. This is necessary for opening bank accounts and filing taxes under your LLC’s name.

You can apply easily and free of charge on the IRS website. The application is straightforward and typically issues your EIN immediately after completion.

Do LLCs need annual reports and other ongoing compliance in Illinois?

Yes, Illinois requires LLCs to file an annual report every year. The report keeps your LLC’s information current with the state and requires a $75 filing fee. The annual report is due by the first day of the LLC’s anniversary month of formation. For example, if you formed your LLC on June 10, your annual report will be due by June 1 every year.

Failing to file the annual report can result in your LLC being administratively dissolved. So mark your calendar and stay on top of this requirement.

Besides the annual report, keep your registered agent information updated and follow any other applicable state or local regulations related to your rental business.

S corp vs LLC for landlords: what’s the difference?

Some landlords wonder about choosing an S corp instead of an LLC. Both have pros and cons. 

An LLC is often considered simpler and more flexible for owning rental property, with fewer formalities and easier management. LLCs may have options for federal tax classification, including electing S corp status, but consult a tax professional to understand what applies to you.

S corps have restrictions on ownership, more administrative requirements, and must pay salaries if you work in the business. However, they can provide tax advantages in some scenarios.

Many Illinois landlords choose an LLC for its simplicity, but individual circumstances vary. If you want to dive deeper, consider chatting with a tax professional to see what fits your financial situation best.

Should landlords use an LLC for rental property in Illinois?

Many landlords use LLCs because they provide a level of personal asset protection and can help separate your rental business from your personal finances. This separation is useful for liability protection, especially if you own multiple properties or have outside investors.

Still, an LLC isn’t a silver bullet. It doesn’t replace the need for good insurance or responsible property management. You can read more about should landlords use an LLC to weigh the pros and cons.

LLC vs umbrella insurance: which is better for rental property risk management?

LLCs and umbrella insurance policies serve different but complementary roles. An LLC can protect your personal assets by separating your rental business as a legal entity. Umbrella insurance provides additional liability coverage beyond your standard landlord insurance, helping cover large claims or lawsuits.

You will often see the best protection by combining both strategies. Learn more about this balance in our detailed post on LLC vs umbrella insurance.

When does forming an LLC make sense for Illinois landlords?

Forming an LLC may make sense if you:

• Own multiple rental properties or plan to grow your portfolio
• Want to separate your rental income and liabilities from your personal finances
• Are concerned about personal liability protection
• Have partners or investors involved in ownership

It may not be necessary if you own only one property and have minimal risk, but even then, many landlords find the peace of mind worth it.

Remember, an LLC is just one piece of the puzzle. You’ll also want to have comprehensive landlord insurance in Illinois to properly manage risks.

Final thoughts

Setting up an LLC for a rental property in Illinois can be a beneficial step for many landlords and investors, depending on their situation. It offers liability protection, business credibility, and organizational benefits. Illinois makes the process fairly straightforward with clear rules for filing articles of organization, paying an LLC filing fee, and submitting annual reports.

If you’re wondering how to set up an LLC for a rental property, now you have a step-by-step guide tailored to Illinois. Just remember to keep up with ongoing requirements like your annual report and registered agent updates. And don’t forget to get your LLC’s EIN from the IRS.

Finally, consider your entire risk management strategy—including the right insurance coverage. You can start by exploring our landlord insurance in Illinois page and learn how to balance LLC protections with insurance safeguards.

For official details, visit the Illinois Secretary of State’s business services page and the IRS EIN application portal.

Good luck with your Illinois rental business!