Real Estate Professional vs. Non Professional (Taxes)

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Real Estate Professional vs. Non Professional (Taxes)

Jess White
Rental Property Investor · San Jose, CA · Member since 2018 · 152 posts · 159 votes

What’s the difference when it comes to taxes?

What can you write off as a “Professional” that you can’t as a Non Professional. I’m referring to the IRS terms for investors and the differentiations.

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  • Lance LvovskyPro Member
    Accountant · Fort Lauderdale, FL · Member since 2013 · 1k+ posts · 753 votes
    7y

    @Jess White

    No difference in deductions. Difference lies in application of overall losses against other sources of income such as wages and no net investment income tax. Among other but those are major.

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  • Natalie KolodijBusiness Member
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    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    7y

    As Lance mentioned the difference is related to losses. 

    Normally you can't use losses from passive income to offset active income. (your w2 income for example). 

    There's a small taxpayer exclusion where you can take up to $25k in losses but that phases out at $100k and goes away completely at $150k. 

    So if you're married and making $160k a year.....and your rentals generate $5k in losses. You don't get any benefit from those. They just roll forward until a year when you have active income to use them against. 

    If you're a real estate professional both spouses get the benefit. So if one of you keeps your w2 job making $150k a year and the other managers your rental portfolio and meets the tests to  qualify as RE pro..and those rentals generate $20k in losses each year....you get to reduce your w2 income by that $20k loss. 

    So that's the major benefit. 

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  • Jess White
    OP
    Rental Property Investor · San Jose, CA · Member since 2018 · 152 posts · 159 votes
    7y

    @Natalie Kolodij Thanks for the reply. That really helps clarify some questions I had.

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