Real estate professional criteria

4 Replies

Hi,  I am very new to real estate investing. We have a had rental property for several years, but I want to take this to the next level.  We have a major repair in our rental this year and I know that we are going to exceed the limit for allowable passive losses.  I am curious of how everyone else does this.  Do you classify yourself as a real estate professional for use in the given scenario: The IRS rules for claiming Real Estate Professional Status are very clear, and require that two key criteria be met in the given tax year:

  1. More than half of the professional hours worked throughout the year must have been devoted to material participation in real estate activities;
  2. More than 750 hours of material participation in real estate activities in the tax year being considered.

Or do you run it as a business as and use a schedule C?  For the real estate professional status, currently I work approximately 40 hours every 2 weeks at my current job, so would I have to work at least 21 documented hours every 2 weeks to meet the first criteria?  I apologize for being so ignorant, I just want to get started right as this is year zero. Thanks in advance for any advice!

@Sarah Lawrence

You are exactly right- you would have to work at least 21 hours a week at your real estate business to get the "professional" status. 

I notice you said "we" in your post. If your spouse qualifies for the "real estate professional" status, you both qualify... so that might also factor into your plan.

Let me know if there's anything else I can help with!

I could be wrong here, but I think you can split the losses across multiple years (if that's an option for you). 

@Sarah Lawrence

Do you only have 1 rental property? It may be hard to justify that you need to spend 21 hours a week to self-manage 1 property.

If you are not able to claim the full loss on your tax return - you do not lose the loss - it gets suspended and carried forward.

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