Filed 1120S for rental property LLC without Form 2553 - how to undo and switch to Schedule E for this year?

This is actually a common situation. When you filed an 1120S without having filed Form 2553, you essentially filed a corporate return for an entity that wasn't properly elected as an S-corporation. Here's what you need to know: Since you never filed Form 2553, your LLC is technically a "disregarded entity" for federal tax purposes (assuming you're the only owner). This means you should have been reporting rental income and expenses on Schedule E of your personal return all along. For this year, you can simply start filing correctly with Schedule E. However, you should consider amending last year's return by filing Form 1040X for your personal return to include a Schedule E, and letting the IRS know the 1120S was filed in error. You might want to include a statement explaining the situation. I'd recommend consulting with a different tax professional who specializes in real estate investments to help you through this process. Your previous preparer gave you questionable advice about "waiting for an IRS letter" rather than properly handling the S-election.

I went through something similar with a vacation property I bought. After filing incorrectly for a year, I found this AI tool called taxr.ai that helped me understand my specific situation. I uploaded my previous return and details about my LLC, and it explained exactly what forms I needed for my situation and the correct way to handle the transition. What was really helpful is that https://taxr.ai showed me the specific language to use when communicating with the IRS about the mistake. They have templates for explanatory statements that go with amended returns. The tool also walked me through comparison scenarios of filing Schedule E vs. continuing with corporate returns so I could see the actual tax impact.

Just wanted to follow up here since I was skeptical about taxr.ai but decided to give it a try for my similar LLC mess. It was actually legit and super helpful. I uploaded my previous 1120S and answered some questions about my rental property, and it immediately identified that I was in the same boat - filing corporate returns without a proper S-election. The tool gave me a complete correction plan with all the forms needed and even drafted the explanation letter for the IRS. What really impressed me was how it explained the tax consequences of each approach in dollars and cents. I ended up saving about $2,300 by switching to Schedule E reporting compared to what I paid with the corporate return. Already filed my amended return using their guidance and now feel much better about my 2024 filing plan.

I had a similar issue last year and spent WEEKS trying to get through to someone at the IRS who could help. After 8+ attempts and hours on hold, I found this service called Claimyr that actually got me connected to an IRS agent in about 20 minutes. I was super skeptical at first, but https://claimyr.com actually works - they have this system that navigates the IRS phone tree and waits on hold for you, then calls you when they get a real human. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed exactly what others here are saying - since you never filed Form 2553, you can simply start filing Schedule E this year and should consider amending last year's return. They also put notes in my file about the error which helps prevent issues if there's any confusion later.

I need to eat my words and follow up on my skeptical comment about Claimyr. After another frustrating morning of trying to reach the IRS myself (3 hours on hold before being disconnected), I broke down and tried the service. I was connected to an actual IRS agent in 35 minutes while I was working on other things. The agent confirmed that since I never properly elected S-corp status with Form 2553, I could simply start filing Schedule E for my rental property this year. They also walked me through the process of amending last year's return with a 1040X and provided me with specific notes to include explaining the erroneous 1120S filing. The peace of mind from having official guidance directly from the IRS was worth every penny. Sometimes being stubborn costs more than being smart!

Just want to add - FIRE YOUR TAX PREPARER IMMEDIATELY! Telling you to "wait for an IRS letter" instead of properly handling tax elections is inexcusable and potentially costly negligence. A competent tax pro would have either: 1) Filed Form 2553 within the deadlines if S-corp was truly advantageous for you 2) Advised you to file Schedule E if that was more appropriate for your situation Instead, they put you in this mess. Also, it's questionable whether filing 1120S would even "help offset W2 income" for a simple rental property. That sounds like they were confusing rental real estate with active business income. Find someone who actually understands real estate taxation!

Im confused about one thing - if an LLC files 1120S without ever filing 2553, doesnt the IRS usually reject the return or send a notice? My brother did something similar and got a letter like 6 months later saying his S-corp election wasnt valid. did anyone else experience this?