It's usually a good idea to have your properties titled in the name of an LLC or other protected entity, but I especially like LLC's for their tax advantages as well as flexibility.
If you only want the legal protection of the LLC, but do not care about the tax advantages of corporate status, you can setup your LLC as a single-member (one owner) LLC. By doing this it can be considered to be a disregarded entity by the IRS. This means that the information can be reported on your personal tax return and you can avoid having to file an additional Corporate or Partnership Tax Return. Not having to file separate tax returns saves you money in administrative costs and tax preparation fees.
In Texas, since it is a community property state, husbands and wives can elect to have their jointly owned LLC treated as if it a single-member LLC also. Husband and wives have the flexibility of choosing partnership status if that is preferable, but they are not forced into it. You have to be careful about electing partnership status, because a separate partnership tax return (Form 1065) usually has to be filed, and there can be substantial penalties if the returns are filed late.
FYI, the filing deadline for partnership tax returns is being moved up to March 15 from April 15 in March, 2016, so some partnership tax filers will get caught with late filing penalties if they are not aware of this tax law change.
Situations like this are examples of why it is usually beneficial to hire a tax preparer who keeps up with the tax law changes, so that you can avoid unpleasant surprises.
Often there are tax advantages of having the LLC make an election to have it taxed as an S-Corporation or C-Corporation instead. Then, after electing this status, it later turns out that this status is no beneficial or needed, you can switch back to disregarded status. There are, of course, limitations on how often you can do this.
The bottom line is this: The flexibility of LLC's is wonderful! They allow you to select which type of tax treatment gives you the most tax savings simply by making the proper tax elections. The potential for savings here can be enormous.
Don McCartney,CPA
"The Real Estate Accountant"
