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

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-

wcginc.com/SubS.pdf