I'm in construction, am I "real estate professional"?

Question

Hey all, this is my first time posting on bigger pockets, hope I'm doing this right. I've been learning about real estate for over a year now and bought my first LTR in February. I'm under contract right now for a second single family house that will be a BRRRR. After listening to the last podcast 689 I wanted to ask the question of am I considered a real estate professional? I have my own construction business so I receive 1099s. I frame new construction homes and after listening to the podcast I thought hey maybe I'll qualify and then be able to run a cost segregation study on one if not both of the properties and then take that deprecation/loss against my 1099 income. Any help would be great. Thanks everyone

I posted this in a different forum and then thought this may be a better spot, thanks again

James Parla · Answer

@Julio Gonzalez thanks Julio, just trying to educate myself as much as possible before talking to my accountant

Ashish Acharya · Answer

That is for REPS status. You also have to materially participate in the rental you are doing cost seg. There is also a limitation on how much W2 you can offset. This is not a DYI project. Please reach out to your tax advisor.

Julio Gonzalez · Answer

@James Parla That was a great podcast episode! Here's an article to read on the requirements for REPS status before you talk with your tax advisor. https://www.aicpa.org/resource...

James Parla · Answer

@Ashish Acharya yup I was planning on it. Just trying to gather as much info as I can before hand. Thanks again

James Parla · Answer

@Ashish Acharya are those the 750 hours, 50% of time and the materially participate rules? Or are there some other ones that I haven’t found out about yet? Also thanks so much for the help, really appreciate it

Ashish Acharya · Answer

That is not automatic. You have to meet various other rules.

James Parla · Answer

@Ashish Acharya so if I am able to get the real estate professional designation I’ll be able to claim the depreciation loss year 1 from a cost segregation study against my 1099 income from the year? Seems way too good to be true but that seems to be my understanding. Do I have the right understanding of that?

Ashish Acharya · Answer

Yes. A real  property trade or business is broadly defined to include real  property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage [IRC Sec. 469(c)(7)(C)]. Reg. 1.469-9(d)(1) states that “depending on the facts and circumstances, a real  property trade or business consists either of one or more than one trade or business specifically described in IRC Sec. 469(c)(7).

I'm in construction, am I "real estate professional"?

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