S-Corp
A corporation that passes income to shareholders' personal tax returns, avoiding double taxation.
Definition
An S-Corporation is a tax election that allows a corporation's income, deductions, and credits to pass through to shareholders' individual tax returns, avoiding the double taxation of C-Corporations. While S-Corps offer liability protection similar to LLCs, they are generally less favorable for holding real estate due to restrictions on loss pass-through and complications when transferring property. S-Corps can be beneficial for real estate professionals who actively manage properties and want to reduce self-employment taxes on management income. Most tax advisors recommend LLCs over S-Corps for holding rental properties.
Related Terms
LLC
A Limited Liability Company — a business structure that separates personal assets from investment property liability.
Passive Income
Income from rental properties or businesses in which the taxpayer does not materially participate.
Real Estate Professional Status
An IRS designation allowing real estate losses to offset active income by meeting specific hour requirements.
Liability
Legal responsibility for debts, damages, or obligations that may arise from owning or managing property.
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