Does getting licensed affect your earned income versus passive income status?

Question

If I would get licensed primarily to get access to the mls, and in general gain that knowledge, does that adversely affect my tax status.

I have no intention on quitting my day job, so if I get licensed, buy a rental property would that income be passive or taxed at earned income rates?

Stephanie Dupuis · Answer

Thanks for the response @Ellis San Jose - that's what I was wondering. I meet with my CPA next week about details, so will see what he says about my specific situation. Nonetheless, was curious.

Take care, Steph

Ellis San Jose · Answer

@Stephanie Dupuis

In CA.  The State Board of Real Estate only allows individuals or corporations ( S & C corps) to hold a real estate license, no LLC's.

Stephanie Dupuis · Answer

As a licensed agent, are you all setting yourself up as an entity to be 1099'd? If so, what type?

Ellis San Jose · Answer

There is a lot of erroneous information in the posts above.  Please consult your CPA and ask about the requirements & effect of being classified as a "real estate professional" on your specific situation.

Stephanie Dupuis · Answer

As a licensed agent, do you set yourself up as an entity to be 1099'd? If so, what type?

Chris Masons · Answer

Chris,

If you are looking to become a buy and hold investor having your license couldn't hurt. It will give you realtor access to the MLS system as well as networking with other Real Estate Professionals (theres that golden term again)

I wish I got my license years ago I Am pretty confident I would haev a much larger portfolio then I have currently......

above all set a date to take some kind of action so you get started!

regards,
Chris

Colleen F. · Answer

You can write the license cost off as an expense but your rental income is still "passive" in almost all cases if you have a non-real estate day job.  I wish the paper work reduction act would be real and they would move to post -card taxes-- the complexities are just mind boggling..

Chris Masons · Answer

Thanks Peter for the details of this IRS rule that I cannot ever remember!

Way too much going on in my littel brain!!  lol

Chris

Peter Fokas · Answer

It can help. One of the requirements to achieve the "real estate professional" tax status is to work at least 750 hours a year related to your real estate work. So doing real estate agent activities does apply to the 750 hours but their are some caveats like your real estate work must be more hours than any other job you do; you must own a % of the real estate agency which can be accomplished by being an independent contractor; etc. need to review all the little details but it can potentially help.