Recording Professional Status

Tax, SDIRAs & Cost Segregation
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Recording Professional Status

Stephen E.
Rental Property Investor · Havelock, NC · Member since 2017 · 74 posts · 19 votes

I have noticed that Tax exemption for real estate professional status. I would like to know more about what this implies and how do you obtain and record what it means to be a real estate professional.

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  • David Mohrmann
    Real Estate Broker · Raleigh, NC · Member since 2016 · 59 posts · 10 votes
    8y
    @Stephen E. If I remember correctly, you must have your license and work “on” real estate for 700 hours per year
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  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    8y

    @Stephen E.

    Remember, RE pro status will help if you have a rental loss this year. If not it is not benefitial but it might still be worth qualifying this years so that it will help you in other years for something called the material participation rules. 

    An individual qualifies as a real estate professional for the tax year if 

    a. more than 50% of the personal services performed by the taxpayer in all trades or businesses during the tax year are performed in real property trades or businesses in which the taxpayer materially participates; , The rental or any other activity that you do not materially participate cannot be counted. and

    b. the taxpayer performs more than 750 hours of service during the tax year in real property trades or businesses in which the taxpayer materially participates., the rental or any other activity that you do not materially participate cannot be counted.


    Note: For both criteria described above, by combining activities into one real property trade or business, the more likely the combined hours spent on the grouped business will satisfy the material participation requirement. 

    You have to make sure your hours are tracked if you have a feeling the you will be struggling to meet hour requirements. 

    If is hard to meet the requirements if you are full time w2 employee.

    This is complicated area, and might require professional help to determine. 

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  • Stephen E.
    OP
    Rental Property Investor · Havelock, NC · Member since 2017 · 74 posts · 19 votes
    8y

    @Ashish Acharya

    Thank you for the detailed criteria. 

    What would a tracking of the hours look like. Could you provide and example?

    This is only applies to rental losses? When should a person consider pursuing this as part of normal business as an investor?

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  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    8y

    @Stephen E. "I have noticed that Tax exemption for real estate professional status"

    Not sure what you mean by tax exemption for RE professionals....

    As @Ashish Acharya laid out above, 'real estate professional' is a designation used to describe a treatment under IRC Sec 469(c)(7).  Real estate professionals are able to apply the material participation rules of Sec 469 and the related regs to rental real estate for a non-passive/passive determination.

    Note the active participation rules are still available to a taxpayer as long as AGI is within thresholds, allowing up to $25k in passive rental real estate losses to offset other non-passive net taxable.

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  • Stephen E.
    OP
    Rental Property Investor · Havelock, NC · Member since 2017 · 74 posts · 19 votes
    8y

    If I understand this correctly, Losses and Deprecation would be separate items or are they treated as the same if you hit a threshold?

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