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

If you own rental property in Tennessee or are thinking about jumping into the market here, you might be wondering about the best way to protect your investment. One popular option for landlords is to set up a limited liability company (LLC) for their rental properties. LLCs can offer some solid protection and flexibility, but the rules and costs vary by state. This guide will walk you through how to set up an LLC for a rental property in Tennessee, what it can do for you, and some important local details to keep in mind.

What is an LLC and what does it protect you from as a landlord?

An LLC is a type of business entity that combines the liability protection of a corporation with the tax simplicity of a partnership or sole proprietorship. For Tennessee landlords, the biggest draw is that an LLC may help protect your personal assets—like your home or savings—from lawsuits or debts related to your rental property.

However, it’s important to understand what an LLC does not protect you from. For example, if you personally guarantee a loan or engage in negligence, the protection might not apply. Also, an LLC won’t protect you from tax obligations or certain regulatory penalties.

If you want to dive deeper into the benefits and potential drawbacks, check out our detailed discussion on LLCs for landlords and rental properties.

How to set up an LLC for a rental property in Tennessee: step-by-step

You may want to consider the following steps involved in setting up an LLC in Tennessee:

1. Choose a name for your LLC

Your LLC’s name must be unique and include “Limited Liability Company” or abbreviations like “LLC” or “L.L.C.” You can check name availability on the Tennessee Secretary of State’s business name search.

2. Appoint a registered agent

Tennessee requires every LLC to have a registered agent with a physical address in the state who can receive legal documents on behalf of your LLC.

3. File articles of organization

The Articles of Organization is the official document that creates your LLC. It includes basic info like your LLC’s name, registered agent, and management structure. You can learn more about what are articles of organization and how to file them on the Tennessee Secretary of State website.

4. Pay the LLC filing fee

You’ll need to pay the filing fee when submitting your Articles of Organization. In Tennessee, the fee is currently $300, which is higher than many other states. However, there is no annual fee to keep it active.

5. Create an operating agreement (optional but recommended)

An operating agreement outlines how your LLC will be managed and how profits and losses are handled. Tennessee doesn’t legally require one, but having it can help prevent disputes.

6. Get an EIN for your LLC

An Employer Identification Number (EIN) from the IRS is necessary for tax purposes and opening a business bank account. You can apply online for free at the IRS website.

7. Register for state taxes if needed

Depending on your rental activities, you might need to register for state taxes or sales tax permits.

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

The main upfront cost is the LLC filing fee of $300. This fee is non-refundable and must be paid when you file your Articles of Organization.

Beyond that, Tennessee LLCs must file an annual report with a $300 fee to keep the LLC in good standing. This annual report is due by the first day of the fourth month after your LLC formation anniversary (usually April 1 if you formed on January 1).

Other potential costs include:

• Registered agent fees (if you hire a service instead of acting as your own agent)
• Operating agreement drafting (if you use an attorney)
• EIN application (free from IRS)

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

Once you file your Articles of Organization online, Tennessee’s Secretary of State generally processes the filing within 3-5 business days. You can speed this up with expedited services for an additional fee.

Paper filings take longer—often 7-10 business days or more. After approval, your LLC officially exists and you can start conducting business.

Articles of organization: what are they and how to file

Articles of Organization are the documents filed with the state to legally create your LLC. They include:

• LLC name and address
• Registered agent’s name and address
• Whether the LLC is managed by members or managers
• Name and address of organizer(s)

In Tennessee, you file these online or by mail with the Secretary of State’s office. The filing fee is $300. You can find the official filing form and detailed instructions on the Tennessee Secretary of State business filings page.

Do I need a lawyer to start an LLC or can I do it myself?

While many landlords handle the process themselves, especially with user-friendly online filings, consulting a lawyer can be helpful, especially for complex situations or to ensure your operating agreement and tax structure are optimized.

For most landlords, the steps are straightforward enough to DIY, as long as you carefully follow the state’s filing instructions.

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

An EIN is like a Social Security number for your LLC and is required for tax reporting and opening bank accounts. To get an EIN:

• Go to the IRS EIN online application page
• Fill out the form with your LLC’s info
• Submit and receive your EIN immediately

There’s no cost to apply through the IRS. For more details, visit the IRS EIN information page.

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

Yes. Tennessee requires LLCs to file an annual report every year with a $300 fee. The report updates the state on your LLC’s contact information and ownership.

Missing the deadline may result in administrative dissolution, which can affect your LLC’s standing and protections.

You’ll also want to keep up with any local business licenses or tax registrations related to your rental property.

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

Many landlords wonder whether to form an LLC or elect S corporation status for their rental business. Here’s a quick look at the differences:

• LLC: Simpler to set up and maintain, flexible management, pass-through taxation by default.
• S corp: Can offer potential tax savings on self-employment taxes but requires more paperwork, payroll, and IRS filings.

Since rental income is generally passive, many landlords stick with an LLC structure unless advised otherwise by a tax professional.

LLC vs umbrella insurance for rental property risk management

An LLC is designed to provide liability protection by separating your rental property business from your personal finances. However, it doesn’t cover everything.

Umbrella insurance provides an extra layer of liability protection above your standard landlord insurance policy. It can cover large claims that exceed your underlying policy limits.

For Tennessee landlords, combining an LLC with landlord insurance in Tennessee and an umbrella policy often offers the best protection. You can read more about how these work together in our article on LLC vs umbrella insurance.

When does setting up an LLC make sense for Tennessee landlords?

LLCs are particularly helpful if you own multiple properties, want to limit personal liability, or plan to bring in partners. They can make it easier to manage income and expenses separately from your personal finances.

However, if you only own one rental property and your risk is low, the cost and paperwork might not be worth it. Also, keep in mind that an LLC is not a substitute for good insurance.

Before making the decision, consider talking with a qualified attorney or tax professional who understands Tennessee’s rules.

Next steps: protecting your rental business in Tennessee

If you choose to form an LLC, you might start by checking name availability and filing your Articles of Organization with the Tennessee Secretary of State, but consider consulting a professional.

Don’t forget to get your EIN from the IRS and file your annual reports on time.

And as you build your rental portfolio, make sure you have the right insurance coverage tailored to Tennessee landlords. Learn more about landlord insurance in Tennessee and consider how an umbrella policy can complement your LLC protections.

Remember, while this guide covers Tennessee-specific details on how to set up an LLC for a rental property, it’s always best to consult with a qualified attorney or tax professional to tailor your approach to your unique situation.