Investor · Ridgewood, NJ · Member since 2012 · 113 posts · 10 votes
How many properties does a person need to hold to justificy 750 hours? For example if you own a two family house and rent both units it would be hard to justify that you worked 750 hours to maintain this. IRS does not specify this but I am sure they must have some sort of general number they keep in mind.
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
13y
Originally posted by Jon Klaus:
My CPA is defending 2 different clients right now in regards to their real estate professional status. He has one overriding message for me based on his recent experiences. KEEP A DETAILED LOG.
Not to hard to defend if the person holds a real estate license. Easy fix - get licensed.
I spend 750 hours a week just reading and replying to posts on BP!
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
13y
Well, how many hours *did* you devote? :)
Here are some things that will affect the number:
- Did you purchase either of these properties this year?
- Did you do a lot of make-ready or rehab work over the year to get/keep the property in rental shape?
- Did you spend much time looking around for other properties over the course of the year?
- Do you do the property management yourself?
- Did you spend a lot of time looking for tenants?
These are all things that will contribute to the numbers of hours you spend in the business. The more of those things you can justify doing, I would imagine the more likely the IRS is to believe you actually spent that number of hours.
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
13y
My CPA is defending 2 different clients right now in regards to their real estate professional status. He has one overriding message for me based on his recent experiences. KEEP A DETAILED LOG.
Investor · Ridgewood, NJ · Member since 2012 · 113 posts · 10 votes
13y
What activities would fall under "Acquire"? Does the time spent looking at properties online fall under this category or actually going to physically visit the different properties?
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
13y
Peter Fokas,
Both could count as hours. Also do not forget that you must not have a full time job as you must spend more hours in Real Estate than in any other industry.
Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
13y
I've never really tracked my hours, but I have 12 rentals in 3 100 year old buildings, and I manage, maintain and renovate them myself. I have another schedule C solo consulting business that is greatly variable in it's income. Does it sound plausible that I am a RE Pro?
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
13y
Originally posted by Johann Jells:
Does it sound plausible that I am a RE Pro?
Originally posted by Jon Klaus:
KEEP A DETAILED LOG.
That's the only true way to know, a log of your consulting hours and a log of your RE hours with exactly what you did for those hours. If at the end of the year you have more in RE than consulting and at least 750 then you can make that determination along with your CPA.
Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
13y
Originally posted by Jon Klaus:
My CPA is defending 2 different clients right now in regards to their real estate professional status. He has one overriding message for me based on his recent experiences. KEEP A DETAILED LOG.
Not to hard to defend if the person holds a real estate license. Easy fix - get licensed.
I spend 750 hours a week just reading and replying to posts on BP!
Wholesaler · garden grove · Member since 2008 · 91 posts · 13 votes
13y
Keep a notebook in your car. Everytime you drive around, log down the date and the time your start the car, and the time you end your trip or turn off your key.
You justify by saying I"m driving to look for properties for myself or my partners. Anyhow, at the end of the year, shouldn't you be able to get over 750 hours?
Just some thought to think about.
P.S. Keep a few pens with different inks, so the IRS scumbs don't say, well last minutes you try to fill out the time log with one ink color pen.
Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
13y
Originally posted by Matt Devincenzo:
Originally posted by Johann Jells:
Does it sound plausible that I am a RE Pro?
Originally posted by Jon Klaus:
KEEP A DETAILED LOG.
That's the only true way to know, a log of your consulting hours and a log of your RE hours with exactly what you did for those hours. If at the end of the year you have more in RE than consulting and at least 750 then you can make that determination along with your CPA.
Yeah, sounds reasonable, but if wanted to punch a clock I wouldn't be working for myself!! Truly, my time is so broken up with the 2 businesses and picking up kids at school etc, in reality I'm simply not anal enough to keep track. I'm sure that sounds pathetic to some of you hyper-organized types, but I know myself.
Is Pro status still an audit magnet if you don't take passive losses at all? I see cashflow from my portfolio.
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
13y
Originally posted by Peter Fokas:
How many properties does a person need to hold to justificy 750 hours?
The IRS counts each rental property as a separate real estate activity. So, you would need 750 hours or more in each rental property activity to claim RE Pro status for all properties.
The IRS does allow you to group your properties into a single activity, but you have to make a separate declaration to this effect in your tax return. Many potential RE Pros overlook this and have their status disqualified.
As has already been pointed out, you must be spending more time in real estate than any other business. If you have a full time W-2 job, you probably won't qualify for RE Pro with less than 2100 hours in your RE business.
Accountant, Enrolled Agent · Grayslake, IL · Member since 2011 · 5k+ posts · 2k+ votes
13y
Johann Jells,
Matt Devincenzo,
Aaron Mazzrillo, License is irrelevant.
Tin Lam,
J Scott.
Dave T,
Jon Klaus,
A license is irrelevant. I have represented many clients before who were audited due to RE professional. You have to be putting in the hours. There are MANY part time realtors who hold a license just for convenience.
A LOG IS A MUST!! With Google Calendar, and a call track program that can save you a ton right there. Every phone call I receive or am on it put on my calendar automatically.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
Dave T, Steven Hamilton II this doesn't make sense to me:
I've read the IRS pubs on this topic and I don't get this at all. Its 750 hours on real estate activities. AND more hours than any other activity. But I don't see anything implies its 750 hours per property. In my (very limited) experience a rental SFR needs about 20 hours per year. Less in a good year, a bit more in a busy year. So, something like 40 SFRs would pass the threshold. A hundred would be a full time job. But because that 2000 hours is split over 100 properties, you're not a RE Pro? Really?
A license is irrelevant. I have represented many clients before who were audited due to RE professional. You have to be putting in the hours. There are MANY part time realtors who hold a license just for convenience.
A LOG IS A MUST!! With Google Calendar, and a call track program that can save you a ton right there. Every phone call I receive or am on it put on my calendar automatically.
-Steven
Steve, can you comment on the odds of getting audited if you never take a passive loss and don't have any w-2 income? My interest is having my properties considered a business rather than asset on college financial aid applications.
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
13y
Jon Holdman,
A real estate professional may deduct rental real estate losses only to the extent he or she materially participates in each rental activity. Unless the taxpayer elected to group his rentals as a single activity, each rental is treated as a separate activity. Under the material participation rules, the time of both spouses is counted. [IRC § 469(h)(5), Reg. § 1.469-5T(f)(3) and Reg. § 1.469-1T(j)]
The material participation test [Reg. § 1.469-5T(a)] then applies separately to each individual rental real estate activity. If the taxpayer materially participates in an activity, net income or loss from that activity is non-passive. If the taxpayer does not materially participate, despite being a real estate professional, the rental is passive and losses (or income) go on Form 8582.
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
12y
To the tax pros, it was mentioned above that looking for, looking at property to buy counts toward 750 hours. IE to me this means time spent searching in MLS, taking phone calls from yellow letter campaigns etc count.
Another question is, which seems obvious if looking for properties in MLS counts then this activity should count too, we do some work on the rehabs ourselves. We can't add to the expense side of a SFR with our own labor, but do these hours count toward the 750?
To the tax pros, it was mentioned above that looking for, looking at property to buy counts toward 750 hours. IE to me this means time spent searching in MLS, taking phone calls from yellow letter campaigns etc count.
Another question is, which seems obvious if looking for properties in MLS counts then this activity should count too, we do some work on the rehabs ourselves. We can't add to the expense side of a SFR with our own labor, but do these hours count toward the 750?
No one can field this one? I'm very interested in this too, I do a lot of the rehab work myself too.
Johann Jells,
Matt Devincenzo,
Aaron Mazzrillo, License is irrelevant.
Tin Lam,
J Scott.
Dave T,
Jon Klaus,
A license is irrelevant. I have represented many clients before who were audited due to RE professional. You have to be putting in the hours. There are MANY part time realtors who hold a license just for convenience.
A LOG IS A MUST!! With Google Calendar, and a call track program that can save you a ton right there. Every phone call I receive or am on it put on my calendar automatically.
-Steven
Mind sharing what call track program do you use or recommend? thanks
This is a 5-yr old post, full of incorrect opinions. Only @Steven Hamilton II is on point, please ignore pretty much everything else.
For example, it's 750 hours total, NOT per property. And you do NOT have to make an election to aggregate all your rental activities. In fact, it can be a bad idea in some situations.
(The IRS does attempt to interpret the law as 750 hr per property, which is utterly ridiculous and has been finally dispelled by a recent Tax Court decision.)
RE Pro is a very complicated (and very regularly audited) area. Make sure you deal with a true expert.
Rental Property Investor · Clarkston, GA · Member since 2012 · 2k+ posts · 1k+ votes
8y
I'll add my own 2018 view re Realestate Pro.... Unless you have a lot of losses in your sum of all Schedule E's that net bottom line is a loss greater then $25k loss I see zero reason to check box Real Estate Pro, zero!!! In fact my view is that is a detrement and if audited may get you more scrutiny. Yes I know I'll get CPA feed back, which is great, I'm ok being corrected!!
- No loses or losses are less than $25k then my view is don't check real estate pro!!!! I wish I could go back and file NOT pro for past years.
Why intentionally want to avoid real etate pro? Well the IRS assumes you are an expert if you are claiming pro. If you get audited, and you are missing any 1099's of contractors (etc etc etc), it will go harder against you. I suspect some will say the IRS will come down the same in such cases if you are or are NOT a pro. Maybe... My guess is that being pro, being audited you are likely to get the worste treatment possible. Vs not pro. This my whole argument for not claiming pro.
Few folks actually have >>$25k losses so I don't know why this comes up at all?? I'm not aware of extra expenses (milage etc) that you can claim when Pro vs Non-pro?? Its just the >>$25k deduction against W2 income. Which if yoiu have zero or low W2, again, why bother with Pro.
Ok, CPA's please offer substiantive benefits beyond the rare (very rare) scenario of >>$25k losses and high W2 that can be negated. Tnx!!
I'll add my own 2018 view re Realestate Pro.... Unless you have a lot of losses in your sum of all Schedule E's that net bottom line is a loss greater then $25k loss I see zero reason to check box Real Estate Pro, zero!!! In fact my view is that is a detrement and if audited may get you more scrutiny. Yes I know I'll get CPA feed back, which is great, I'm ok being corrected!!
- No loses or losses are less than $25k then my view is don't check real estate pro!!!! I wish I could go back and file NOT pro for past years.
Why intentionally want to avoid real etate pro? Well the IRS assumes you are an expert if you are claiming pro. If you get audited, and you are missing any 1099's of contractors (etc etc etc), it will go harder against you. I suspect some will say the IRS will come down the same in such cases if you are or are NOT a pro. Maybe... My guess is that being pro, being audited you are likely to get the worste treatment possible. Vs not pro. This my whole argument for not claiming pro.
Few folks actually have >>$25k losses so I don't know why this comes up at all?? I'm not aware of extra expenses (milage etc) that you can claim when Pro vs Non-pro?? Its just the >>$25k deduction against W2 income. Which if yoiu have zero or low W2, again, why bother with Pro.
Ok, CPA's please offer substiantive benefits beyond the rare (very rare) scenario of >>$25k losses and high W2 that can be negated. Tnx!!
For what it's worth, I 100% agree with this. I've stopped designating myself a Real Estate Professional on my taxes the past few years...