Using an LLC for Rental Property in Florida

An LLC is the standard asset protection structure for rental property in Florida. When rental real estate is titled in the name of an LLC rather than the owner’s personal name, the LLC creates a legal separation between the property and the owner’s other assets. A liability arising from the property, whether a tenant injury, a contractor dispute, or an environmental claim, is the LLC’s liability, and the owner’s personal assets are not exposed. This inside liability protection is the primary reason landlords and real estate investors use LLCs to hold investment property.

The LLC also provides outside liability protection. If the owner faces a personal judgment unrelated to the property, the creditor’s ability to reach the LLC’s assets depends on whether the LLC is structured as a multi-member entity. In a multi-member LLC, a creditor’s exclusive remedy is a charging order, which gives the creditor a lien on the owner’s distributions but no access to the property itself. Combined with a properly drafted operating agreement, the LLC can protect both the owner from the property and the property from the owner’s creditors.

Liability Asset Isolation

Rental property is a liability asset. It generates exposure to claims from tenants, guests, contractors, neighboring property owners, and government agencies. A slip-and-fall on the premises, a habitability dispute, a fire code violation, or a toxic mold claim can produce a judgment that exceeds insurance coverage.

Effective asset protection planning calls for isolating each liability asset in its own entity so that a claim against one property cannot reach the owner’s other investments. If a landlord owns three rental properties in their personal name, a judgment arising from any one of those properties puts all three at risk, along with the owner’s bank accounts, investment accounts, and other personal assets.

When each property is held in a separate LLC, a judgment against one property is limited to the assets inside that LLC. The other properties, held in their own LLCs, are not available to satisfy the judgment. This isolation is the core principle behind the single-purpose LLC structure.

Single-Purpose LLCs

A single-purpose LLC is an entity that holds one liability asset and no safe assets. The LLC owns the rental property, maintains a bank account for collecting rent and paying property expenses, and holds the insurance policy for the property. It does not hold the owner’s savings, investment accounts, or other properties.

The goal is to limit the exposure from any one property to the assets directly associated with that property. If a judgment exceeds the property’s value and available insurance, the creditor’s recovery is capped at what the LLC owns. The owner’s other LLCs, personal assets, and exempt property remain protected.

For investors with multiple properties, the single-purpose structure requires forming and maintaining a separate LLC for each property. Each LLC needs its own operating agreement, its own bank account, its own insurance policy, and its own financial records. The administrative burden increases with each entity, but the liability isolation is the trade-off that makes the structure worthwhile for properties with meaningful liability exposure.

Not every property justifies its own LLC. A vacant lot with no structures, no tenants, and minimal liability exposure may not warrant the cost of a separate entity. The decision depends on the property’s risk profile, its value, and the cost of maintaining an additional LLC. Florida charges an annual report fee for each LLC, and each entity adds accounting and compliance work.

Vacation Home LLCs

Vacation rental properties present heightened liability exposure compared to long-term rentals. Short-term guests are less familiar with the property, more likely to engage in recreational activities on the premises, and more likely to involve children or large groups. Swimming pools, docks, hot tubs, and waterfront access multiply the risk.

A vacation home LLC operates on the same principles as any rental property LLC, but the owner should pay particular attention to insurance coverage (short-term rental policies differ from standard landlord policies), local licensing requirements (many Florida counties and municipalities require vacation rental licenses), and the additional liability that comes from furnishing and equipping the property.

If the owner personally uses the vacation property for part of the year, the LLC must be structured carefully. The owner’s personal use should be documented, and the operating agreement should address the terms under which the owner occupies the property. The property should not be the owner’s primary residence, because transferring homestead property to an LLC eliminates both the creditor exemption and the Save Our Homes assessment cap.

Landlord Liability and the LLC Shield

Florida law imposes various duties on landlords, including the obligation to maintain the premises in a habitable condition, comply with building codes, and address known hazards. When the landlord is an LLC, the tenant’s claims run against the LLC rather than the individual owner.

The LLC shield is not absolute. If the owner personally guarantees a lease, personally commits a tort on the property, or is directly negligent in a way that causes harm, the owner can be held personally liable regardless of the LLC structure. The LLC protects against vicarious liability for the acts of the entity, not against the owner’s own wrongful conduct.

Adequate insurance remains the first line of defense. The LLC should carry commercial general liability insurance with limits appropriate for the property’s risk profile. Umbrella coverage may be appropriate for owners with multiple properties. The LLC structure provides a second layer of protection if the insurance proves insufficient or if a claim falls outside the policy’s coverage.

Maintaining the LLC as a genuinely separate entity is essential to preserving the liability shield. The property’s income and expenses should flow through the LLC’s bank account, not the owner’s personal account. Leases should be executed in the LLC’s name. Maintenance contracts, vendor agreements, and insurance policies should all list the LLC as the contracting party. Commingling funds or treating the LLC as an extension of the owner’s personal finances creates grounds for piercing the corporate veil, which would eliminate the liability protection.

Structuring the LLC for Maximum Protection

A rental property LLC should be structured as a multi-member entity whenever possible. A single-member LLC provides inside liability protection (shielding the owner from the property’s claims) but does not provide reliable outside liability protection (shielding the property from the owner’s personal creditors). Adding a second member, whether a spouse, a family member, or an irrevocable trust, secures charging order exclusivity and makes the LLC significantly more protective.

For married couples, holding the LLC interest as tenants by the entirety provides an additional layer of protection against the individual creditors of either spouse. The combination of TBE ownership and multi-member charging order protection gives married property owners two independent shields.

The operating agreement should include provisions specific to real estate LLCs: authority for the manager to execute leases, make repairs, and hire property management companies without requiring a member vote on routine decisions, distribution provisions that allow the LLC to retain earnings for capital improvements and reserves rather than distributing all rental income, and transfer restrictions that prevent a member’s creditor from acquiring management rights if a charging order is entered.

Tax Considerations

A single-member LLC holding rental property is treated as a disregarded entity for federal income tax purposes. The rental income and expenses are reported on Schedule E of the owner’s personal tax return. No separate entity-level return is required.

A multi-member LLC is treated as a partnership by default and must file Form 1065 annually, with each member receiving a Schedule K-1. The partnership return adds complexity and cost but is the price of multi-member asset protection. Some married couples may be able to elect qualified joint venture status to avoid the partnership return, though the IRS has not definitively addressed this election for Florida LLCs owned as tenants by the entirety.

The LLC structure also permits flexibility in expense deductions. Property management fees, maintenance costs, mortgage interest, property taxes, depreciation, and insurance premiums are all deductible against the rental income. The LLC’s financial records should clearly document all income and expenses to support these deductions and to demonstrate the entity’s separate existence for asset protection purposes.