an LLC in itself is not the issue. owning rental real estate in an LLC taxed as an s-corp is. many lessors operate at a loss usually due to depreciation. to deduct the loss a member must have basis. a sole proprietor does not face this problem. in an LLC taxed as a partnership members get to use the qualified nonrecourse financing (QNRF) to increase their basis. example: a member's capital a/c $2,000 member's share of QNRF $98,000, basis $100,000 so that member could deduct losses up to $100,000. If the LLC has elected S-Corp taxation, the tax laws for S-Corps apply. same situation except LLC taxed as S-corp. there are no loans from shareholder/LLC member. since S-Corp tax laws apply the mortgage does not add to shareholder/member's basis. member basis is now only $2,000 so that's the limit of losses that can be deducted,
the usual reason to elect S-Corp vs LLC taxation is that in a business that is not rental real estate the full profit is subject to SE tax while in an S-corp only the wages are subject to Fica and Medicare taxes. rental activities where no personal services areb't involved. like AIRB&B, are not subject to SE taxes. remember that it is only for tax purposes that an LLC can be treated as an S-Corp. legally you still have an LLC.
