I am planning to setup an S-corp (say LLC-B) to manage this rental property and a new property I will be acquiring this year. LLC-A is a disregarded entity for tax purposes and I report the rental income/expense on Sch-E. The income from LLC-B will be reported on Sch-C where all of it will go to my solo 401K leaving zero tax liability.
An S-corp must file an 1120S tax return. The income is not reported on Schedule C but on page 2 of Schedule E. For a moment disregarding that the IRS may blow the whole thing up saying there is no economic substance, the S-corp is now conducting a business - managing property - you would have to take a reasonable salary that would flow to your 1040. You would be paying FICA and Medicare taxes and your retirement plan contributions would be limited. Should the IRS blow it up any money in that retirement account would be immediately taxable.
