BillB, great post.
Many folks hold real estate, other than their primary residence, in a Limited Liability Company (LLC). A "single member" LLC can be set up with only one member (husband and wife can be considered a single member). This entity can be "disregarded" for tax purposes and therefore will not be required to file a Federal tax return. In many states the Single Member LLC will have to file a state tax return (typically a one or two page long return that indicates that all transactions will be reported on an individual tax return and then names the individual) and pay an annual tax of some amount to the state. The purpose of this structure is to (as the name implies) limited potential liability. There have been instances in which the LLC vail has been nullified and the owners were held liable. An LLC owner can be held personally liable if he or she: personally and directly injures someone; personally guarantees a bank loan or a business debt on which the LLC defaults (lenders will require a personal guarantee for LLC's and usually closely held corporations); intentionally does something fraudulent, illegal, or reckless that causes harm to the company or to someone else; or treats the LLC as an extension of his or her personal affairs, rather than as a separate legal entity.
Remember an LLC is not an invincible legal shield. It is a tool that can be used along side a good liability insurance policy to help minimize the risk.
Oh and as an also and besides, NEVER hold real estate in a "C" corporation unless you either (1)love double taxation or (2) never intend to distribute the proceeds out of the C corp.
Once again, I'm not an attorney, please consult with your attorney, your CPA, the mailman, and the guys down at the local Pub regarding these matters.
