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I and my wife have a small business that is registered in MA as an S-Corp, we have also a rental property. I am told that to protect ourselves it is better to register the rental property as LLC. I was wondering (particularly under the new tax law) which one of the following options is more advisable:

  1. Transfer the ownership of the rental to the S-Corp (buy it from ourselves)
  2. Change the S-Corp to LLC and then transfer the ownership of the rental to the LLC.
  3. Keep S-Corp as it is and form an LLC for the rental property.
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  • Are you asking which is better from a tax standpoint, or from a legal protection/liability standpoint? – Ben Miller - Reinstate Monica Jan 9 '18 at 20:40
  • @Ben Miller: My understanding was that from a liability standpoint they are similar. So my question is mainly about the tax implications, but I would appreciate if someone could explain the difference in liability if such a difference exists. – per Jan 9 '18 at 21:32
  • You said that you are trying to “protect” yourself by making this move. Protect yourself from what? The liability question is a better fit for law.SE, but the tax question could get an answer here. – Ben Miller - Reinstate Monica Jan 9 '18 at 21:37
  • @Ben Miller, OK, my question is about the tax implications and which option is better from that point of view. – per Jan 9 '18 at 22:07
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Keeping the S-Corp as it is and forming an LLC for the rental property seems like the most advisable option. Rental properties are normally considered passive income and therefore not subject to self-employment tax. If you rent through an S-Corp, you will have to perform payroll and pay self-employment tax on it. This will increase your tax liability by converting passive income into earned income.

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