The main purpose of an LLC is to protect the assets of the owner(s) while providing flow-through tax treatment. Owners benefit from the pass-through taxation, so earnings from passive investments are taxed at the individual's rate. This is a great passive real estate investment structure because the owner's assets are protected from litigation and loss & real estate does not trigger self-employment taxes (unless an active business activity, like a quick flip, takes place).
LLCs are the most common type of structure used for passive investments. Passive real estate investments include buying and holding vacation homes, rentals, raw land, commercial properties, liens and notes for a year or more; anything less than a year is usually considered business activity. Real estate is not the only possibility, but the most common.
For other business structures, see Businesses.
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