Tax disadvantages for becoming a realtor?

Question

Hi all!

My agent keeps encouraging me to get my real estate license and work under his brokerage. I have some interest in this as I might like to go full blown on property management in a couple of years (you need 3 years agent here before you get your brokers). What I'm trying to figure out is if there are any tax *disadvantages* for becoming a realtor if you already own a bunch of rental property?

Currently I file just a regular 1040 with the requisite Schedule E's for the properties. I certainly wouldn't want to do anything that might negatively affect my filing abilities. He tells me that there's some pretty significant benefits for getting my license, but I have to preface that with the fact that I have a regular W2 and am not going to work anywhere near a full-time gig as a realtor; I'd be surprised if I had more than 100 hours in a year in it total. And of course there's some costs to getting my license.

I'm interested in hearing from some of you that may have went from rental property owners to realtor, and what you might have saw. Also from some of our tax-savvy people around here!

@Natalie Kolodij @Brandon Hall @Linda Weygant

Ashish Acharya · Answer

There wouldn't be any disadvantages. The more money you make, the more taxes you will pay.

If you were under 150k of AGI and were benefiting from 25k rental loss exception, then if you increase your AGI, you might lose that. Same with other credits that come with lower AGI.

The benefit is that your commission would qualify for most of the retirement plan contribution and might be able to shield most of it. Of course, the detailed analysis of your situation is required to conclude that.

Natalie Kolodij · Answer

Potential downsides :

• If your AGI is currently under $150k and you're able to utilize rental losses and you start making money on paper from the realtor income, it could bump you over the threshold.
•

•     If you are going to keep working a w2 full time job likely can't qualify you for RE pro via hours from rentals or realtor. But- if there's a chance of shifting toward that in the next few years establishing the fact pattern early couldn't hurt.

• It could BENEFIT you if you currently CAN'T use your rental losses and you're deducting items like a home office or part of cell phone ect, you can shift those to a non-passive business where they can generate a usable loss potentially.

• Maybe a little more tax planning - another income source, maybe some estimated payments ect

• Another entity- not sure how your rentals are setup but you'll want to make sure you can't be sued for a RE contract gone bad and have your properties exposed to risk.

Tax disadvantages for becoming a realtor?

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