Residential Real Estate Broker · Paso Robles, CA · Member since 2015 · 196 posts · 58 votes
Hi all. So I've been managing a handful of STR's for a few years now. Two listings are my own and seven others for STR owners who don't want anything to do with managing on their own. I have a business set up for all of my real estate operations aside from my own STR's (real estate sales, real estate photography, and STR managing). I know this is a question for my CPA (who I have already emailed), but curious to know if anyone else is doing this already and if it is advantageous financially. I have always kept the management it's own business (S Corp) and then my own STR's their own separate sole-prop business. Should I "hire" my S Corp to "manage" my own personal STR's? In other words just treat my own STR's just the same as my clients STR's where my S Corp essentially charges myself a commission to manage the STR's. All income and expenses would flow through the S Corp first and then my S Corp would pay me and my wife our net payout each month just like I do with my STR owner-clients. I hope I painted that picture well enough to understand! TIA!
I'm not a CPA, but my first thought is you have to pay self-employment tax on your s-corp payouts, but not on your personal properties if you don't have them set up in a partnership.
So all you'd be doing here is creating an additional tax on yourself.
I have the same thing (management company and personal properties) and I run them separately currently, but I have considered putting the personal properties into the management company but with a 0% commission. This would be done just to simplify operations, as currently the funds all have to be kept separate which means my employees have to use different credit cards etc for the personal properties, and they often mix them up which creates a huge headache.
Concern there would be for material participation, as it might make the properties look passively managed to the IRS since they're being run through a management company (even though the management company is me).
It depends. Are you trying to shift liabilities to your management company in the event you get sued? If yes, it might be worth it.
In effect, you're moving money out of one pocket and putting it into another so there's no real tax change unless you're paying yourself more in w-2 from your s corp (since you're making more money). It really Depends on what your goals are with this transaction.
@Patrick McCandless You're asking an excellent strategic question that blends real estate operations with tax efficiency and entity planning.
1. Entity Separation and Purpose
Your current structure separates activities:
S Corporation: Manages third-party STRs.
Sole Proprietorship: Holds and operates your personally-owned STRs.
This separation makes sense from a liability and reporting standpoint. However, you're now considering whether to formalize a management relationship between your S Corp and your personal STRs. This can offer some benefits—but also comes with key considerations.
2. Hiring Your S Corp to Manage Your STRs: Is It Allowed?
Yes, you can contract your S Corp to manage your own properties as long as:
You execute a formal management agreement.
Compensation is at market rates.
Transactions are documented properly and conducted at arm’s length.
The IRS allows related-party transactions, but they must be substantiated to avoid disallowed deductions or recharacterization.
3. But First — A Critical Note on SE Tax
If your personal STRs are structured and qualify as rental real estate, then:
The income is generally not subject to self-employment (SE) tax.
There is no requirement or benefit in routing that income through your S Corp just for tax reasons.
So unless your goal is to contribute more to a retirement plan (like a Solo 401(k)) or access corporate fringe benefits, there may be no financial advantage to having your S Corp manage your own properties.
4. Potential Advantages — If You Do Choose to Use the S Corp
If you still decide to run your personal STRs through your S Corp, here are some reasons why you might:
a. Operational Consistency
Streamline management operations (cleaners, VAs, software).
Standardize cash flow and reporting across all managed STRs.
Treat yourself as a client, issuing monthly payouts like you do with others.
b. Retirement and Benefits Strategy
By increasing income to the S Corp (via management fees from your STRs), you can:
Use an accountable plan for tax-free reimbursements.
c. Income Splitting and Tax Optimization
Your S Corp pays you and your wife a reasonable salary (subject to FICA).The rest can be taken as distributions (not subject to SE tax).
This does not reduce SE tax on your STR income directly, but could optimize total household tax burden if additional income is pushed through the S Corp.
5. Risks and Compliance Issues
Related-Party Transactions: Ensure your arrangement doesn’t disqualify depreciation or losses.
Passive vs. Active Classification: STR income managed via a related S Corp could complicate tax treatment, especially if you materially participate.
Double Taxation: Income paid from you to your S Corp is taxable to the S Corp; be sure it’s justified.
6. Best Practices (If You Proceed)
Draft a formal property management agreement between your STR ownership entity (you or an LLC) and your S Corp.
Use reasonable market rates (e.g., 20–30%) for management fees.
Keep separate books and bank accounts.
Have your CPA review quarterly to fine-tune salary, withholdings, and contributions.
7. Alternative Structure to Consider
If scaling, consider creating an LLC (single-member or with your spouse) to hold your STRs. Then, contract your S Corp to manage that LLC's properties. This further separates operations and ownership and may improve optics and liability protection.
Final Thought
Yes, hiring your S Corp to manage your own STRs can be advantageous, but only if your goal is to increase retirement contributions or access S Corp-specific benefits.
If you're not looking to do that, and your STR income is already not subject to SE tax, then there's no tax reason to route it through your S Corp. Operational consistency might still be a valid reason, but purely for tax savings, it's unnecessary. Your instincts are right, just be intentional with the "why." Await final direction from your CPA, but you're clearly thinking like a seasoned operator. This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
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