Tax Filing: Professional Real Estate Status

[Michael Doherty]

Hi All,

I am looking to get input from people who file their tax return using the Professional Real Estate Status. Specifically, I want to understand how you track your daily activity and to what level of detail? Are there any apps you use or do you handle it all on Excel? Showing the 750+ hours is not my challenge, but determining how to present it and to what detail is where I'm struggling. 

For example, can I simply say from 10-11 I sent emails or do I have to specify who I sent them to? From 11-12 I had 4 conversations with clients, do I need to specify details of those convos and what clients?

For context, I am a full time real estate agent and investor in Connecticut. I do wholesaling, flipping, and buy and hold rentals. Given I am claiming losses in excess of $25,000, it's important I have detailed logs of daily activity. 

Thank you in advance!

[Jonathan Bock]

Don't overthink it too much it already sounds like you are more organized than most operators and you track your time and use a system.  

[Benjamin Weinhart]

Hi Michael,

As Jonathan said, I think you are thinking much more into this than what is required. You'll need to be able to substantiate your status if you're ever questioned about it, but it sounds like you're really good at record-keeping already, so that shouldn't be an issue. All you would need to say really is that you materially participated in the business during the tax year and just be prepared in the case of an audit/IRS notice.

[Zachary Jensen]

Hey @Michael Doherty, 

Im glad to see you track your time diligently. You are already better at that then a lot of clients we have when they come to work with us here. I would suggest a few things: 

1. don't make repetitive log entries every day " managed rental, did calls" copied and pasted 50 times likely would be thrown out in an audit for example. 

2. make sure you are materially participating in your rental activities. 750 hours is not enough, you need to pass the second test of material participation in the rental activities to turn that activity from passive to active and claim the deductions on your active income. 

[Samuel Eddinger]

@Michael Doherty - As Nike said, just do it!

[William Collins]

@Michael Doherty  The big thing which should make it easier to claim is what you said here: 

For context, I am a full time real estate agent and investor in Connecticut. I do wholesaling, flipping, and buy and hold rentals.

This is your primary  activity. There is not a second W2 or 1099 with more income coming in correct? For context, as I have not left my day job so I am disqualified. 

From: https://www.irs.gov/publications/p925#en_US_2022_publink1000...

Qualifications.

You qualified as a real estate professional for the year if you met both of the following requirements.

• More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.
• You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.

Don’t count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest.

If you file a joint return, don’t count your spouse's personal services to determine whether you met the preceding requirements. However, you can count your spouse's participation in an activity in determining if you materially participated.