Discussion:Real estate professional?

From TaxAlmanac, A Free Online Resource
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.

From TaxAlmanac

Jump to: navigation, search

Discussion Forum Index --> Advanced Tax Questions --> Real estate professional?
Discussion Forum Index --> Tax Questions --> Real estate professional?

Kmikeburns (talk|edits) said:

14 May 2008

I have a client who was self-employed as a real estate appraiser and also as a real estate agent. In addition to this he had 4 rental properties.

Gross income from appraisals $ 67000 Real estate sales $ 36000 The question is whether he should be treated as a real estate professional for purposes of taking a full deduction for $ 35000 in losses on the rental properties. He probably spent 750 hours by the time you add real estate sales and rental management (maybe) But this was 2006 and he was spending a lot of time on appraisals for refinances. Any one have experience or comments? Thanks

Solomon (talk\|edits) said:	14 May 2008
If the tests were met, was material participation met with each of the rentals - or aggregated?

Kmikeburns (talk|edits) said:

15 May 2008

He could only meet the 750 hour test if you combine real estate sales which was reported on schedule C with all 4 of the rental properties.

It is questionable if he could meet the 50% test since he spent a lot of time on appraisals. He went to a CPA who amended his return and took the entire loss. This is only an issue because he and his wife had a substantial income in 2006 and could not take any of the loss.

Marcilio (talk|edits) said:

15 May 2008

Real estate activities get aggregated for the 750 hour test. For example, if he spends 500 hours as a real estate agent and 250 hours managing the rentals, he is a materially participating real estate professional. I had this come up with a client who is a contractor and has one rental house. Contracting activity made him a materially participating real estate professional. I don't know about real estate appraisals, but that might qualify him too.

Death&Taxes (talk\|edits) said:	15 May 2008
Not to be snarky, but with the way the real estate market is going today, his appraisal income will drop off the table and he'll get the losses through the active participation test this year, and maybe next, if his wife is not a high earner. Sometimes aggregating can produce unintended consequences down the road.

Marcilio (talk\|edits) said:	15 May 2008
I've had clients stuck with that too.. having to recognize losses when they would prefer to have them suspended. I haven't figured out how to have it both ways. ♥

Kmikeburns (talk\|edits) said:	15 May 2008
Death&Taxes Don't passive lossses have to be carried forward until the property is sold or can the carryforward losses be taken in years where income falls below the limits.

Kmikeburns (talk\|edits) said:	15 May 2008
Does any one know of tax court decisions or audits regarding this. I think the client spent more than 50% of his time in appraisals which don't qualify. Also, the original return did not contain an election to treat all activities as one.

Death&Taxes (talk\|edits) said:	15 May 2008
On your point to me, once Modified AGI drops below 150, those carryover passive losses are in play. See the discussion with LALVA and I about Proseries and rental losses.

Kmikeburns (talk\|edits) said:	16 May 2008
Then amending the return would just be moving the loss into 2006 when it likely would be allowed as a carryforward anyway if I am understanding what you are saying. I will see the discussion you are referring to and I really appreciate you response. Thanks

Kmikeburns (talk\|edits) said:	16 May 2008
I found quite a few discussions. I did not find one with LALVA unless I just did not recognize it. It looks like it is pretty difficult to actually qualify as a "real estate professional" and deduct the entire loss against other income. I do see where the loss carries forward and can be used in future years. Thanks for the input.