Discussion:Who Is a RE Professional?

Would an S corp plumbing contractor for which a majority of its revenues comes from new residential construction and/or remodeling qualify its 100% SH-EE (working F/T in the businss) as a RE professional for purposes of the passive activty loss rules?

I suspect you will find your plumber is in the same boat, but it should be noted the test is based on any reasonable method of applying Facts & Circumstances.

I suspect your plumber, when times are slow, will bid on any work. My late brother was a builder (who passed before the RE Pro was put into law) who when times were slow or money tight, would bid on rehabbing schools and public buildings.

Is there some IRS document specifying which NAICS codes are considered to meet the definition of real property T or B?

The plumber at the job site is inherently different than the attorney drawing up RE contracts from his 34th floor office that his clients are signing.

You are pushing a tax position that is in dark dark dark grey territory.

1.469-5T(a) "Except as provided in paragraphs (e) and (h)(2) of this section, an individual shall be treated, for purposes of section 469 and the regulations thereunder, as materially participating in an activity for the taxable year if and only if—

(2) The individual's participation in the activity for the taxable year constitutes substantially all of the participation in such activity of all individuals (including individuals who are not owners of interests in the activity) for such year.

Just so you know, I'm not saying you are write or wrong, I'm just pointing out what I would do if I came across this issue in an examination, and tossing my opinion in for good measure. Good luck with your research! It's certainly an interesting issue.

A lot of you on here are not keeping up with modern trends in construction. I am only half kidding (the part about the 5x5 bedroom is true) lol..

Another thing that is just the truth: the high dollar items in a home today don't usually include old-fashioned stuff like carpentry. They include alllll kinds of plumbing devices, and fancy stoves. My stove both cooks and eats my food, so as to keep my weight down.

So, who really is the builder today on dollar terms? The old carpenter, or the plumber, electrician, obligatory kitchen designer, bath designer, and several fellars running around telling you what color to paint things? Huh?

So, the moral of the story is: don't be petrified over your wood. When it's time to slumber, call your plumber.

One thing you got to figure. A good lawyer, if given a scrap of law, can make something out of it, or he aught to be able to if he's any kind of advocate. You also got to figure that the Judge himself or herself has been through a remodel. I am not talking plastic surgery, though that is a possibility. I am talking about the obligatory kitchen and bath job. Twice what a house itself used to cost!

What I am saying is, I was not joking about the dollar argument. What is contruction dollar wise today? Lot of that construction and reconstruction is just for the very items that the specaility contractors do, and that the Judge has had to pay for himself or herself.

The lack of clarity in the definition of IRC 469 and Reg 1.469 with regards to "Real Estate Professional" has always bothered me. Court cases don't seem to help a lot here either.

After looking at it a little more, I'm not sure I would attempt to adjust a plumber claiming "real estate professional" based off of his profession. It doesn't "feel" right, but jdugancpa is correct to point out the other hurdles are much more objective and therefore in my opinion, much more subject to successful examination/adjustment. Subjective portions of tax code such as "real estate professional" occupations are sticky for an RA to get into, at best, especially with a competent CPA or representative. So, as a revision to what I previously posted, my challenge to the "plumber" occupation would really depend on all the facts. Based on the few facts here... I actually would NOT challenge this. Would I raise my eyebrows when first seeing this on a return? Sure. Adjust based on "plumber" status? I'd have no basis in primary code and regs to do it (As far as I know).

Sorry for the flip-flop... but hey, you're seeing my initial impression vs the reality of moving cases and cost/benefit of pursuing an issue.

I actually heavily researched this issue due to a case with a taxpayer who was a real estate agent. I ended up disallowing the use of passive losses, but for very different reasons. The stated profession of "real estate agent" is actually a weaker position for a taxpayer than a plumber. A plumber is clearly in construction/reconstruction. A real estate agent... depends on the state. They are agents of a broker (a broker clearly meets the IRC 469 language), and probably are better termed real-estate salesperson. So, my beef was that they were really providing a service to their clients, and not truely in a IRC 469 backed "real estate professional" position. BUT - I dropped the issue. I went at it from a different angle which was solidly backed in IRC, and was able to bypass that whole (in my opinion) weak argument that I had developed. A little clarity from IRS Counsel or from court cases would be appreciated - and maybe it's out there and I just didn't look long enough.

Anyhow - I've typed too long. I'd reclassify my initial assessment above from dark dark dark grey to ... middle grey. Material participation in real estate activity ALWAYS makes my stomache queasy as an exam issue. Once again, good luck.

Finally, and this is what my plumber does, a string of colon therapy (colonic) clinics. He gets them all ready, and finds willing qualified operators to lease. The equipment to set these things up is extravagant because you're aiming for a hole in one every time. So, it's precision plumbing, and a lot of maintenance. He sat up one recently that had a diesel blower on one unit for the patients that are really full of it (referred to in the trade as the "stalwarts").

So, there's opportunity that would materially engage the willing entrepreneur.

I hope my clients understand and appreciate me for not offering to shake their hands when we meet.

Bottoms up!

IRS Technical Advisors (through discussion with IRS Counsel) have begun pushing for clarification of the authorized professions for Real Estate Pro.

IRS guidance to agents and officers is that Real Estate Agents do not qualify as brokers, and their participation in rental activities remains passive (unless they meet the regulatory requirements through other means).

Additionally, the plumber mentioned above would probably be reclassed by an agent as NOT a real-estate professional.

This doesn't mean the IRS has the right of it - but this will help push the issue into courts for final clarification.

Thanks