LLC Real Estate Taxes — New York
Holding real estate in an LLC is one of the most common asset protection strategies for New York property investors. But the tax treatment of a real estate LLC depends on how the entity is structured, how many members it has, what tax classification it elects, and how the property is used. Getting this right at formation prevents costly problems when you sell, refinance, or transfer the property.
Attorney Cook holds an LL.M. in Taxation and an MBA and advises real estate investors on entity structuring, tax elections, and transaction planning.
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How Real Estate LLCs Are Taxed
The IRS does not have a special tax classification for “real estate LLCs.” A real estate LLC is taxed the same way as any other LLC — based on the number of members and the tax election in effect.
Single-member LLC (disregarded entity). The default classification. The LLC is ignored for federal tax purposes. Rental income, expenses, depreciation, and gains or losses are reported on the owner’s personal return — typically on Schedule E (Supplemental Income and Loss) for rental properties or Schedule C if the owner is actively engaged in a real estate trade or business. There is no separate entity-level return. This is the simplest structure and the most common for individual investors holding one or a few rental properties. Learn more about disregarded entity LLCs.
Multi-member LLC (partnership). An LLC with two or more members is taxed as a partnership by default. The LLC files Form 1065 (U.S. Return of Partnership Income) and issues each member a Schedule K-1 reporting their share of income, deductions, and credits. This is common for joint ventures, investment partnerships, and family-owned real estate holdings. The operating agreement controls how income and losses are allocated among members — and that allocation must comply with IRC § 704(b) to be respected by the IRS. Learn more about operating agreements.
LLC electing S-Corp or C-Corp taxation. Real estate LLCs can elect to be taxed as an S-Corp or C-Corp, but this is rarely advisable for property-holding entities. S-Corp status creates complications with depreciation recapture, built-in gains, and restrictions on the type of income that can flow through. C-Corp status results in double taxation on rental income and capital gains. For most real estate investors, the disregarded entity or partnership classification is the better choice. Learn more about S-Corp elections.
New York State and Local Tax Considerations
New York adds several layers of tax complexity for real estate LLCs.
New York annual filing fee. Every LLC doing business in New York — including single-member disregarded entity LLCs — must file Form IT-204-LL and pay an annual fee based on New York-source gross income. The fee ranges from $25 (for income under $100,000) to $4,500 (for income of $25 million or more). This is not an income tax — it is a flat fee based on gross income, and it applies regardless of whether the LLC is profitable.
New York transfer taxes. When real property is transferred to or from an LLC, New York imposes transfer taxes. The state real estate transfer tax is $2 per $500 of consideration (0.4%). For residential properties over $1 million and commercial properties over $2 million, an additional “mansion tax” of 1% applies. New York City imposes its own transfer tax on top of the state tax — 1% for residential properties under $500,000 and 1.425% for residential over $500,000, with higher rates for commercial properties. Transferring property into a newly formed LLC can trigger these taxes if the transfer is not structured correctly.
New York City Unincorporated Business Tax (UBT). If the LLC operates in New York City and is engaged in a trade or business (as opposed to passive investment), the LLC may be subject to the NYC UBT at a rate of 4% on taxable income. Whether rental real estate activity constitutes a “trade or business” for UBT purposes depends on the level of services provided and the nature of the activity. Passive rental income from a net lease is generally not subject to UBT; income from short-term rentals or properties where the owner provides significant services may be.
SALT cap. The $10,000 federal cap on state and local tax deductions (SALT) affects individual real estate investors who pay significant New York income taxes. Some investors use the New York Pass-Through Entity Tax (PTET) election to partially work around the SALT cap — the LLC or partnership pays an entity-level tax, and the members receive a corresponding credit on their personal returns. This can produce a net federal tax benefit. We advise on whether the PTET election makes sense for your real estate LLC. Learn more about the SALT tax cap and real estate.
Depreciation
Depreciation is one of the most valuable tax benefits of real estate ownership. Residential rental property is depreciated over 27.5 years. Commercial property is depreciated over 39 years. The land itself is not depreciable — only the building and improvements. When property is held in an LLC, the depreciation deductions flow through to the members. For single-member LLCs, depreciation is reported on Schedule E. For multi-member LLCs, each member’s share of depreciation is reported on their K-1.
The cost segregation study — an engineering analysis that reclassifies certain building components into shorter depreciation categories (5, 7, or 15 years) — can accelerate depreciation deductions significantly in the early years of ownership. We coordinate with cost segregation specialists when this strategy is appropriate.
1031 Exchanges
A 1031 exchange allows a real estate investor to defer capital gains tax by exchanging one investment property for another of like kind. The rules are specific and unforgiving — the replacement property must be identified within 45 days and closed within 180 days, a qualified intermediary must hold the proceeds, and the exchanger cannot touch the funds.
When property is held in an LLC, the entity structure matters. If a single-member LLC holds the property, the exchange is straightforward — the IRS disregards the LLC, and the exchange is treated as if the individual is the exchanger. If a multi-member LLC holds the property and only one member wants to do a 1031 exchange while others want to cash out, the transaction becomes significantly more complex. In some cases, the LLC must distribute the property to the individual members before the exchange, or a tenancy-in-common structure must be used. Planning for this in advance — ideally in the operating agreement — avoids last-minute problems.
Electing S-Corp taxation for a real estate LLC can make 1031 exchanges more difficult or impossible, which is one reason we rarely recommend the S-Corp election for property-holding entities.
Liability Protection and Separate LLCs per Property
Many real estate investors form a separate LLC for each property. The reason is liability isolation — if a tenant is injured at Property A and sues, the lawsuit reaches only the LLC that owns Property A. Properties B, C, and D — each in their own LLC — are insulated. Without separate entities, a single lawsuit could reach all of the investor’s properties.
This strategy works, but it requires maintaining each LLC as a genuinely separate entity — separate bank accounts, separate books, separate operating agreements, and no commingling of funds between entities. If the entities are not maintained properly, a court can pierce the veil and treat them as a single entity. We advise on how to structure and maintain multiple real estate LLCs cost-effectively.
The trade-off is compliance cost — each LLC must file its own annual fee with New York, complete the publication requirement, and maintain its own records. For investors with a large portfolio, a holding company structure (a parent LLC that owns individual property LLCs) can simplify management while preserving liability isolation.
Transferring Property Into an LLC
If you already own real estate in your personal name and want to transfer it into an LLC, the transfer must be handled carefully. Potential issues include transfer tax liability (some transfers between an individual and their wholly-owned LLC may qualify for an exemption, but the exemption rules are narrow and vary by jurisdiction), mortgage due-on-sale clause (most mortgages contain a provision allowing the lender to call the loan if the property is transferred — some lenders consent to LLC transfers, others do not), title insurance (the existing policy may not cover the LLC — a new policy or endorsement may be needed), and reassessment risk (in some jurisdictions, a transfer can trigger a property tax reassessment).
We advise on whether and how to transfer existing property into an LLC, including lender communication, title review, and transfer tax analysis.
How We Help
We work with real estate investors at every stage — from forming the LLC and selecting the right tax classification, through acquisition, operation, refinancing, 1031 exchanges, and eventual sale. Our services include entity formation and structuring (single LLC, multiple LLCs, holding company structures), operating agreement drafting with real-estate-specific provisions, tax classification analysis (disregarded entity vs. partnership vs. PTET election), transfer tax planning for property contributions and dispositions, 1031 exchange coordination, and ongoing compliance (annual filings, publication requirement, record maintenance).
Learn more about LLC formation. Learn more about our real estate practice.
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Call toll-free: (888) 275-2620. Available 24/7.
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Last reviewed by Attorney Ronald S. Cook — April 2026
This page is for informational purposes only and does not constitute legal advice.
