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What are tax issues with an LLC owning a rental property?

Article ID: 77
Last updated: 15 Dec, 2013
Revision: 7
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By Jason Watson ()

None. However, if you elect to treat your LLC as an S-Corp you might run into another level of unnecessary taxation. Here’s why- rental properties are considered passive income even if you actively or materially participate in the rental activity. Passive income by definition is not subjected to self-employment tax.

However, if you elect to have your LLC be treated as an S-Corp for taxation purposes you could potentially have to pay yourself a reasonable wage for the management of the LLC which in turn is subjected to FICA and Medicare taxes (15.3%). This is the same as paying self-employment tax. Save yourself the potential grief and headache by having your rental property LLCs be regular LLCs and your business LLCs be LLCs with the S-Corp election. Please read our tax article on the S-Corp election at-


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Also read
item Do rental properties offer good tax sheltering?
item Rentals Owned by an LLC Fallacy
item How does an LLC or S-Corp's income affect my taxes?
item If the S-Corp taxation is what I ultimately want, should I form an LLC or C-Corp?

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folder Rentals FAQs - Watson CPA Group

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