The Real Estate Dilemma: Why Picking LLC vs. S-Corp Matters More Than Ever
Critical Tax, Liability, and Estate Planning Insights for 2025 and Beyond
Hello, Dear Friends!
Welcome to our in-depth exploration of entity selection for real estate investors in 2025. In my recent article, The Million-Dollar Question—When to Shift from LLC to S-Corp or C-Corp? we looked at how entrepreneurs across all industries can decide between different entity types. However, real estate presents unique challenges and opportunities regarding taxes, liability, and estate planning—so we wanted to expand that discussion specifically for investors juggling rentals, flips, and development projects.
Whether you're a budding landlord with a few rentals or a seasoned pro managing a million-dollar portfolio, this advanced guide will help you navigate the complexities of LLCs vs. S-Corps for real estate. Below, we’ll tackle the latest IRS enforcement priorities, asset protection strategies, estate planning nuances, and more—plus a detailed comparison table to help you identify the right structure for your deals.
Critical Tax, Liability, and Estate Planning Insights for 2025 and Beyond
Real estate investing has long demanded careful entity selection—LLC or S-Corp?—but in 2025, the stakes are even higher. The IRS has ramped pass-through audits, 23 states have updated charging order rules, and high-income investors face a complete QBI phaseout for incomes over $750k. Meanwhile, cost segregation and bonus depreciation are shifting, requiring precise structuring to maximize tax savings while safeguarding assets.
Below, we explore advanced topics such as Section 469 grouping, estate planning with a step-up basis, Series LLC compartments, and “reasonable salary” pitfalls in S-Corps. We also include a table comparing the core entity forms for real estate.
1. The New 2025 Landscape
IRS Enforcement
The IRS is now cross-referencing returns to ensure entity structures match the underlying income type (e.g., passive vs. active).
$68B in underreported pass-through taxes were collected in 2024 alone, a sign that enforcement will only intensify.
State-Level Asset Protection Changes
23 states revised their charging order statutes for LLCs. Some states (like Wyoming and Delaware) strengthened protections, while others have less robust rules.
Understanding which state laws govern your LLC is critical—filing an LLC in a “favorable” state won’t necessarily protect you if you operate primarily in a state with weaker statutes.
QBI Phaseout Over $750k
High-income filers (married filing jointly) lose access to the 20% Qualified Business Income (QBI) deduction.
This diminishes one of the main tax benefits of LLC pass-throughs for large investors, increasing the appeal of S-Corps (for flipping/development) despite potential pitfalls.