Real Estate Professional - IRS Audit

[Roy Williams]

Hi Folks,

Our friends at the IRS are auditing my 2009 return, mostly because of my real estate professional designation.
I have a full time job and the rentals take up all of the rest of my time and I easily spend more time on them.
I own 10 properties with a total of 30 units. Based upon your experience, as long as I can show a weekly log (which I can) of my time spent on my properties are they going to make much of a fuss over it given the amount of real estate I own?

Thanks!

[Bill Walston]

Originally posted by Roy Williams:

Thanks for sharing that story. Does not sound like fun. Luckily my losses in total are approx $40k, only about $15k over the normal $25k allowance. Hopefully they will find that $15k isn't worth the time and money to make this a landmark audit.

One of the first things the auditor is likely to do is ask you for written documentation of hours you worked in your real estate business. If you can document 2081 hours of work in your real estate business you MAY have a fighting chance. If not, you fail the over 50% of time test, and you do not qualify as a real estate professional. The auditor will limit your deductible losses to the $25K. Point of fact, the IRS considers this a very easy audit, as most taxpayers don't have sufficient documentation to support the requisite number of hours to meet the test. If you haven't already met with your tax pro, I recommend that you schedule an appointment ASAP!