AJXterra Posted October 16, 2007 Share Posted October 16, 2007 We bought our house a year or so ago and are getting around to fixing up the garage apartment and renting it out. However, I have a few legal and tax questions that I'd appreciate help on.Is it possible/recommended to establish a corporation to oversee rental of the garage apartment? Please remember this is on our primary residence property, but is in a detached structure. There are obvious tax benefits to doing this, but is it ok in regards to your primary residence from a liability standpoint? Does this open up recourse to be taken against our primary residence?How did some of you or people you know rent out your/their garage apartments? I guess my primary concern is from a liability standpoint regarding my house while renting to someone else on my 'land'.Thanks. Quote Link to comment Share on other sites More sharing options...
TheNiche Posted October 17, 2007 Share Posted October 17, 2007 We bought our house a year or so ago and are getting around to fixing up the garage apartment and renting it out. However, I have a few legal and tax questions that I'd appreciate help on.Is it possible/recommended to establish a corporation to oversee rental of the garage apartment? Please remember this is on our primary residence property, but is in a detached structure. There are obvious tax benefits to doing this, but is it ok in regards to your primary residence from a liability standpoint? Does this open up recourse to be taken against our primary residence?How did some of you or people you know rent out your/their garage apartments? I guess my primary concern is from a liability standpoint regarding my house while renting to someone else on my 'land'.Thanks.Unless your corporation owns the garage apartment, it won't protect you from most forms of legal liability. Quote Link to comment Share on other sites More sharing options...
Native Montrosian Posted October 17, 2007 Share Posted October 17, 2007 From an insurance standpoint, you would be held liable. A "residence premises" which you can find in your Homeowners policy definitions under "insured location" includes the dwelling, other structures (which would include garage and apartment) and grounds. You may want to discuss some sort of contract wording with an attorney requiring any potential tenants to carry renter's insurance which will include liability & medical payments and at least provide a layer of protection for anything happening inside the apartment which is clearly due to the renter's negligence, like a guest tripping over an electrical cord or slipping on a melted ice cube. I'd recommend minimum limits of $300,000 for liability & $5000 for medical payments. I've also seen hold harmless agreements for anything regarding a known potentially-hazardous condition, such as a loose step - tenant has a certain number of days to report the situation and give the owner reasonable time to remedy it; otherwise, if anything happens, the owner is not held liable. Quote Link to comment Share on other sites More sharing options...
lwood Posted October 17, 2007 Share Posted October 17, 2007 We bought our house a year or so ago and are getting around to fixing up the garage apartment and renting it out. However, I have a few legal and tax questions that I'd appreciate help on.Is it possible/recommended to establish a corporation to oversee rental of the garage apartment? Please remember this is on our primary residence property, but is in a detached structure. There are obvious tax benefits to doing this, but is it ok in regards to your primary residence from a liability standpoint? Does this open up recourse to be taken against our primary residence?How did some of you or people you know rent out your/their garage apartments? I guess my primary concern is from a liability standpoint regarding my house while renting to someone else on my 'land'.Thanks.My insurance broker provided me with a $1,000,000 liability umbrella policy for $225/year that picks up after your homeowner's policy. Quote Link to comment Share on other sites More sharing options...
spiderman Posted October 18, 2007 Share Posted October 18, 2007 My insurance broker provided me with a $1,000,000 liability umbrella policy for $225/year that picks up after your homeowner's policy.Even if you were to set up a corporation or LLC, a tenant could still sue you individually outside of the corp/LLC and claim you were personally negligent - on the basis that you as an individual were actively involved in the management of the rental property.Go with lwood and pick up the umbrella liability policy. Quote Link to comment Share on other sites More sharing options...
AJXterra Posted October 18, 2007 Author Share Posted October 18, 2007 Thanks everyone. I appreciate the help! Quote Link to comment Share on other sites More sharing options...
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