Real estate professional while working a W2?

[Mark Delosreyes]

CPA friends, I'm an accountant/controller by trade and have a W2 salary position in that field. I'm also a seasoned real estate investor: flip 10+ houses per year and 50+ rental units. I handle the bookkeeping for our multiple LLC's, acquisition and finding financing for all of our properties. I track all of my hours and legitimately spend more time in real estate - I get up at 4:00am each morning, handle accounting for my LLC's, listen to Bigger Pockets podcasts, search for and analyze the next deal. I'll also check on rehab projects and even do attorney closings on my lunch break. At what point can I claim I'm a real estate professional on my personal tax return? Thanks!

[Michael Plaks]

Quote from @Mark Delosreyes:

CPA friends, I'm an accountant/controller by trade and have a W2 salary position in that field. I'm also a seasoned real estate investor: flip 10+ houses per year and 50+ rental units. I handle the bookkeeping for our multiple LLC's, acquisition and finding financing for all of our properties. I track all of my hours and legitimately spend more time in real estate - I get up at 4:00am each morning, handle accounting for my LLC's, listen to Bigger Pockets podcasts, search for and analyze the next deal. I'll also check on rehab projects and even do attorney closings on my lunch break. At what point can I claim I'm a real estate professional on my personal tax return? Thanks!

First, make sure that you're only counting qualifying hours. Listening to BP podcasts does not qualify, for instance.

If you're confident that you can prove spending more (qualified) hours in real estate than in your W2 job, you can check the box. Your audit chances would be pretty high under normal circumstances. (Current mess in the Federal government, the IRS included, is an uncharted territory, so nobody knows what it means for future audits.)

If audited, you will have a tough time, because it's generally assumed that a controller works at least 40 hours every week, and usually more. So you will need an ironclad proof of spending 40+ hours every single week on real estate activities that count, i.e. hands-on activities. Not totally impossible but a steep uphill battle.