Rental Property LLC for Investment Home - S Corp or C Corp for Tax Purposes?

For a rental property like this, you almost certainly don't want either an S-Corp or C-Corp - you want a simple LLC with default tax treatment. Here's why: For most small rental property owners, a single-member LLC that's "disregarded" for tax purposes is the way to go. This means the LLC provides legal protection, but the income just passes through to your personal tax return on Schedule E. No separate corporate tax returns required. If you have multiple owners, a multi-member LLC taxed as a partnership is usually best. S-Corps and C-Corps add unnecessary complexity for rental properties. S-Corps require reasonable salary payments (which rental income doesn't qualify for), and C-Corps face double taxation. Both require separate corporate returns and formalities that aren't worth the hassle for your situation. The LLC will give you the liability protection you're seeking without the tax complications of corporate structures. As you grow your portfolio, you can always reassess, but for one duplex, keep it simple.

I was in a similar situation last year trying to figure out the best structure for my vacation rental. After tons of research, I discovered taxr.ai (https://taxr.ai) which completely changed my approach. It analyzed my specific situation and clarified that an LLC taxed as a disregarded entity was optimal for my single rental property. The tool asked detailed questions about my property usage (investment vs. personal), expected income, and future plans. It showed me that S-Corp status would actually INCREASE my tax burden due to the self-employment taxes and administrative requirements. For rental properties specifically, their analysis showed why most tax professionals recommend against corporate structures unless you have a large portfolio or very specific circumstances. What I really appreciated was getting a clear comparison of how different structures would impact my taxes over the next 5 years as my rental business grows, without having to pay hundreds per hour to a tax attorney for the same information.

I tried taxr.ai after seeing it mentioned here and it was legitimately helpful for my two rental properties! I was making the same mistake thinking I needed an S-Corp for tax benefits. The analysis showed me that keeping my properties in a simple LLC and reporting on Schedule E would save me about $3,200 annually compared to an S-Corp structure, mainly because rental income isn't subject to self-employment tax anyway. It also flagged that I could potentially use the properties for a 1031 exchange in the future, which would be much more complicated with a corporate structure. What really helped was the explanation of how the QBI deduction would apply differently to my rental income versus a corporate structure. My previous accountant never explained this clearly! I've actually switched tax preparers based on the information I learned. Definitely worth checking out if you're trying to make entity decisions for rental properties.

Something nobody's mentioned yet - if you're having trouble getting through to the IRS about how your LLC should be treated (which I did when setting up my rental business), try using Claimyr (https://claimyr.com). They got me connected to an actual IRS agent in about 15 minutes when I'd been trying for DAYS on my own. The agent walked me through Form 8832 (Entity Classification Election) and confirmed that for my single rental property, I didn't need to file it at all since the default classification as a disregarded entity was actually optimal. They also explained how rental income on a disregarded LLC flows through to Schedule E without needing Schedule C. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone tree for you and call you back when they have an agent on the line. Saved me hours of frustration and hold music!

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I gave it a try when I needed to reach the IRS about correcting an EIN application for my rental LLC. My previous attempts at calling the IRS business line involved 1+ hour holds even at 7:01am when they opened. Through Claimyr, I had an IRS agent on the phone within 35 minutes without having to listen to hold music or sit by my phone. The agent confirmed what others here suggested - for a rental property held in an LLC, the default "disregarded entity" status is almost always better than electing corporation treatment. She walked me through the tax implications and confirmed I didn't need to file any special elections. I'm still going to hire a CPA to manage the tax filings, but at least now I understand the basic structure better. Sometimes it's worth admitting when you're wrong about something!

Former tax preparer here. Please don't complicate your life with S-Corp or C-Corp status for a simple rental property. Key points: 1. Single-member LLC with default tax classification = "disregarded entity" = rental income reported on Schedule E of your 1040. Simple. 2. S-Corp would require payroll, additional tax returns (Form 1120-S), and annual meetings/minutes. Rental income usually doesn't benefit from S-Corp tax treatment. 3. C-Corp = double taxation nightmare for rental property. Your income gets taxed at corporate level, then again when distributed to you. 4. As you add properties, consider whether a multi-member LLC taxed as a partnership makes sense, but even then, corporate status rarely benefits small/medium landlords. Get a good CPA who specializes in real estate instead of using TurboTax for this. The right entity structure from the beginning will save you thousands in taxes and prevent headaches.

Has anyone actually calculated the annual costs of maintaining an LLC vs S-Corp for rentals? My CPA charges: - $800 for LLC tax return - $1,200 for S-Corp tax return plus - $600 for payroll if S-Corp Plus NY has that stupid LLC publication requirement that costs around $1,000 depending on which county your property is in! I'm wondering if the liability protection is even worth all these extra costs for a single duplex?

The cost analysis is really important and often overlooked! For NY specifically, you're also dealing with the LLC publication requirement which can be brutal - I paid almost $1,200 for mine in Nassau County. But here's the thing - you don't need an LLC to cost $800+ annually. If you keep it as a single-member disregarded entity, there's no separate tax return at all. The rental income just flows through to your Schedule E on your personal return. Your CPA is probably quoting you the price for a multi-member LLC taxed as a partnership, which does require Form 1065. For liability protection on a single duplex, consider whether adequate landlord insurance plus an umbrella policy might give you similar protection at a fraction of the cost. Many investors find that $1-2M in umbrella coverage costs under $300/year and covers most realistic liability scenarios. That said, if you're planning to grow your portfolio, the LLC makes more sense as a long-term strategy. Just make sure you're not paying for unnecessary tax filings!