Becoming RE Professional for Tax Purposes

3 Replies

All,

My husband and I own 28 rent units in another state. I co-manager these with my father-in-law. He is local and does showings and maintenance, and sends apps to me for processing. I do the advertising, and have to coach him through anything legal or financial. We also have a ranch that we lease out. My primary job is teaching college courses online part-time. 

We are considering some additional investments that would mean I would be more involved in the real estate. One of them would essentially be a full-time job for about 10 days out of the year, plus some marketing and book-keeping during the rest of the year. If we purchase this, I am considering declaring myself a RE Professional. I have no problem meeting the 750 hour requirement. I may be on the fence with the > 50% requirement. My husband actually suggested cutting back on my teaching responsibilities so I am spending less time on it. We paid $71K in federal and state taxes last year, and we estimate we could save about half of that through writing off losses such as depreciation and mortgage interest. Currently, we're unable to write off losses due to income, and have a significant capital loss carry forward. It seems like if I spend less time teaching and reduce my income a little, we could save quite a bit more in taxes. What am I missing? 

Would it be beneficial for me to get my RE license to strengthen my claim to be a RE professional? Could I find a broker to sponsor me to be a real estate agent for just a few hours per week? Or is this unnecessary? 

Thanks,

Mariah

@Mariah J.

If you meet the requirement of becoming a real estate professional already, then being a real estate salesperson will not necessarily benefit.

In the event you get audited regarding the claim of being a real estate professional, you will need to show details/log/journal of the hours related to the acceptable real estate related activities.

It's either you meet the test or you don't meet the test. Becoming a real estate salesperson may help potentially help if you don't already meet the hours.

This is best to work on with an accountant to make sure you are logging the hours from the get-go.

@Mariah J. As @Basit Siddiqi said work with your accountant. I declared myself a RE Professional last year and we got our first tax refund ever! It has a lot to do with other income sources-like those college courses you teach? Also, in your case if you file jointly there maybe an additional wrinkle there caused by your husband's income sources. Work with your accountant he will help you figure this out. 

@Mariah J. as others said best to speak with accountant, but having the RE licence wont necessarily be needed for the RE professional requirement. It may come in handy for other things. You don't have a problem with the 750 hours, but the >50% is really what needs to be quantified and documented. Once you have that, if you are filing jointly, then you can use depreciation to offset yours and your husbands income, not just what is being produced from the properties.

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