Partnerships are generally a better choice for real estate investment businesses. Here are some reasons why:
- S-Corporations are more complicated than partnerships, they involve more administrative work because members must receive wages.
- Real estate investment income isn't subject to self-employment tax. Paying self-employment tax is one reason most people choose to be an S-Corporation, in this case it wouldn't be needed.
- When property is contributed to the business and if the mortgage balance ever exceeds the tax basis of the property or properties, under an S-Corporation, that will cause a gain. In contrast, under a partnership, that wouldn't be the case.
- Partnerships generally allow tax-free distributions of appreciated property; with an S-Corporation it'd be a taxable event.
