LLC vs S Corporation (real estate CPA explains)

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In this episode, Ryan Bakke breaks down the key differences between LLCs and S Corporations—and why putting your rental real estate in an S Corp could cost you thousands in taxes. While S Corps are great for service-based businesses, Ryan walks through three major tax traps for real estate investors who use them. He also shares his recommended entity structure for those running both passive rental portfolios and active real estate businesses. If you’re a real estate investor or advisor trying to optimize your tax strategy, this episode is essential listening.

Timestamps:

00:00:00 – Intro: When an LLC beats an S Corp for real estate

00:00:37 – Key differences: Tax treatment, liability, and ownership flexibility

00:01:44 – Why S Corps are popular for service businesses (and when they work)

00:02:29 – How an S Corp can save $9,000/year in self-employment tax

00:03:43 – Why those savings don’t translate to real estate investing

00:04:12 – S Corp disaster #1: Losing depreciation deductions

00:05:40 – S Corp disaster #2: Refinance triggers a taxable event

00:07:28 – What happens when you move property from an S Corp to personal name

00:08:25 – S Corp disaster #3: Paying self-employment tax on passive income

00:09:26 – When S Corps do make sense (flipping, development, active real estate)

00:10:08 – Ryan’s recommended entity structure: Active vs. Passive buckets

00:10:29 – Benefits of using LLCs for rentals: Depreciation, 1031s, flexibility

00:11:11 – Recap: Avoiding tax nightmares with the right structure

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*None of this is meant to be specific investment advice, it's for entertainment purposes only.