Real Estate Professional

In general, rental activities are passive for individual taxpayers. A passive loss is subject to restrictions that can reduce or even eliminate the applicable tax deduction unless that taxpayer is a real estate professional.

A real estate professional is a person who:

  1. Spends more than half of their working time in real estate activities.  If you have a day job in another field you can pretty much forget about meeting this test.
  2. Spends more than 750 hours during the year in real estate activities.

The taxpayer has to be able to prove it.  For example, a real estate professional should continually update and maintain a diary in order to document the amount of time spent in the real estate business.

If you meet those tests, you might qualify to be treated as a real estate professional and avoid passive loss treatment for rental activities in which you materially participate.

The rules are complicated and there are other issues to consider (the grouping of activities, for example).  If you have any questions, please contact our office.

For more information, contact our office.

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