Entity Structure for Real Estate: LLC, S-Corp, or Something Else?

LLC, S-Corp or maybe something else?

Which one should you choose?

Well, you see - your legal entity isn't just paperwork.

It's a very important part of your financial success - especially since it's the key element of your foundation.

Because your entity structure impacts your taxes, liability, and long-term financial results.

For real estate investors, choosing between an LLC, S-Corp, or another entity type could be the difference between overpaying the IRS and creating a smart, scalable structure that protects your assets and profits.

Below, we will explore why entity structure matters, the core differences between popular options, and how to decide what’s right for your investment model.

Why Your Entity Structure Matters

So why is it so important to choose the right entity structure?

Well, you see - choosing the right entity affects your tax burden, personal liability, and most importantly, your ability to grow.

For example, income taxes and self-employment taxes are handled differently across structures.

Asset protection also varies - operating under your personal name exposes you to risk, while a properly structured LLC can shield you from lawsuits or debt liability tied to a specific property.

Beyond taxes and liability, structure also impacts how you raise capital, onboard partners, and manage compliance.

Many investors begin with a single property under their own name, but as they scale, that setup becomes inefficient and risky.

Comparing Common Real Estate Entities

Let's explore the most common real estate entities.

A sole proprietorship is the default for many starting out.

It requires no paperwork, but that simplicity comes at a cost.

There's no liability protection, and all income is taxed on your personal return.

This setup offers no separation between your personal assets and business risks - making it a poor choice for holding properties.

Then we have the LLC.

Limited Liability Companies (LLCs) are by far the most popular structure for real estate investors.

They provide legal protection, pass-through taxation, and operational flexibility.

Whether you're managing long-term rentals or commercial properties, an LLC lets you isolate liability and simplify reporting.

You can form individual LLCs for each property to reduce exposure, or operate under a parent entity with subsidiaries if you're growing a portfolio.

S-Corporations are a better fit for active income models - like flipping, wholesaling, or operating short-term rentals.

They reduce self-employment taxes by allowing owners to split income between a reasonable salary and profit distributions.

However, S-Corps come with more administrative complexity, including payroll and formal shareholder requirements.

For passive investors, the tax advantages rarely outweigh the hassle.

For active operators, the savings can be substantial.

Finally, we have the C-Corp.

C-Corporations are rare in real estate due to double taxation.

While they may suit institutional investors or high-volume developers, most individual investors won’t benefit from this structure.

Profits are taxed at the corporate level, then taxed again when distributed as dividends.

Passive vs Active Income: A Critical Factor

The IRS distinguishes between passive and active income.

Long-term rental income is considered passive, while house flipping and short-term rentals may fall under active income.

This classification influences how much self-employment tax you owe and which entity structure is most efficient.

If you're primarily earning passive income, an LLC is typically the best option.

If you're actively involved in projects generating large one-time gains, such as flips, an S-Corp may offer real savings by reducing payroll taxes.

This is where many investors make costly mistakes - misclassifying their income and choosing the wrong entity as a result.

When To Rethink Your Structure

Business models evolve.

Always.

And if you want to step on top of your game and retain as much as possible of your hard-earned dollar, you should evolve, too.

If you’ve added more properties, partners, or started offering services like property management or development, your original structure may no longer be serving you.

Even a small shift in income sources can have significant tax implications.

A review of your structure should happen annually, especially if you’ve scaled beyond a few properties or begun generating new income streams.

Delaying this kind of assessment often leads to inefficient tax filings, unnecessary exposure, and missed growth opportunities.

How Cutler & Co. Helps You Choose and Optimize

At Cutler & Co., we don’t believe in one-size-fits-all entity recommendations.

We evaluate each client’s income type, asset structure, risk exposure, and long-term vision.

From there, we design or adjust your structure to deliver maximum protection and tax efficiency for you and your business.

Our team helps clients form LLCs, elect S-Corp status where appropriate, and restructure legacy entities to align with a modern portfolio.

Always and everything for our clients.

We always want to ensure your books, tax filings, and cash flow strategies all reflect your chosen model - so nothing gets lost in translation.

If you’re unsure whether your current structure is helping or hurting your business, now might be a great time to reassess.

For a confidential chat - Book a Structure Strategy Call with Cutler & Co.

Let's explore together what options are available to you out there.