Entity-Level Tax Mechanics

Owning rental property through an LLC shapes liability without altering federal tax rates by default. A single-member LLC remains a disregarded entity, reporting rental income and allowable deductions (depreciation, mortgage interest, property taxes, maintenance) directly on Schedule E. Multi-member LLCs file Form 1065 as partnerships, passing net rental results through on Schedule K-1.

Operating rental real estate through an S corporation is generally an architectural error: distributing appreciated property out of an S corporation triggers immediate capital-gains recognition under IRC §311, forfeiting the IRC §1014 basis step-up and trapping equity inside corporate wrappers. Keep appreciating real estate in pass-through LLCs or partnerships.

Under IRC §199A, eligible rental real estate qualifies for the 20% QBI deduction if the activity satisfies the 250-hour safe harbor of Rev. Proc. 2019-38 or otherwise qualifies as a statutory IRC §162 trade or business. High-income limitations apply if taxable income exceeds statutory thresholds.