Business losses on real estate for high income earners

2 Replies

Hello,

My LLC owns 2 apartment buildings (60 units and 35 units) that are going to experience a relatively significant loss this year after depreciation and expenses. I am a "high income earner" because of my income from work and have not been able to claim any losses from the apartments since owning them. Am i missing anything? Does anyone know any ways to capture any of these losses to bring my personal income down? I know that i can carry the losses forward but would love to claim it this year.

Nope. The only way you can take these losses if your AGI is over $150K is to be a real estate professional.  And that requires spending 750 hours doing RE AND more hours on RE than anything else.  If you have a full time job that means 2081 hours on RE a year.

This is, IMHO, one of the highly misleading things told to new investors.

Jon Holdman, Flying Phoenix LLC

@Jon Holdman  is correct.

If you are classified as a real estate professional, all real estate losses can be used to off-set your ordinary income. To qualify, 51% of the personal services you performed in all trades or businesses during the tax year must be performed in real property trades or businesses in which you materially participated AND you performed more than 750 hours of services during the tax year in real property trades or business in which you materially participated.

However, if you are working in the real estate field (i.e. as a broker) and working for someone else (i.e. you are an employee), you do not get to count these hours or services toward the two criteria stated above unless you own at least 5% equity of the business you work for.

One thing that is important to note - if you are in a management capacity of contractors or personnel that manage your property, those hours can be counted toward the REI Pro designation. But if you work a 9-5 job, you can't overlap hours. Your RE hours would begin whenever you leave your job and start participating in RE activities.

@Nate Bartow  

Medium logo blackBrandon Hall CPA, The Real Estate CPA | http://www.therealestatecpa.com | Podcast Guest on Show #196