REPS status for wife (to avoid taxes associated with sale of biz)

[Timothy Solomon]

I am about to sell my business and make a substantial amount of income from it. Does anyone have any experience with getting REPS status and immediately investing the money in real estate from the sale proceeds to avoid a large tax bill? My wife is a realtor but hasn't been active in years. She is willing to get back into (actually spend 750hours/year) it if it will signficantly reduce our tax liability. How is this done? I understand this is a high likelihood of being audited. 

Any insight is highly appreciated. 

[Ashish Acharya]

Originally posted by @Timothy Solomon:

I am about to sell my business and make a substantial amount of income from it. Does anyone have any experience with getting REPS status and immediately investing the money in real estate from the sale proceeds to avoid a large tax bill? My wife is a realtor but hasn't been active in years. She is willing to get back into (actually spend 750hours/year) it if it will signficantly reduce our tax liability. How is this done? I understand this is a high likelihood of being audited. 

Any insight is highly appreciated. 

If your tax advisor were any good, you should not be even paying any taxes when you sell your business. Your business should have any structured in such a way that you could avoid 10 million in a gain. Since, we can’t change that now, let’s focus on the next step.

You need to understanding the benefit of the real estate professional status first.  You need to have a loss from your rental real estate activity to offset your other income. 
Yes, you can reinvest your money and buy an asset that will give you a large cost seg depreciation to avoid the taxes. However, this is highly audited area and you will see some blocks:

1) you need to find a right asset first that you  enough depreciation with cost seg. 

2) you need to materially participate in that activity.

3) your losses might even be limited based other IRS code section. 

4) You need to have an audit proof and documentation of real estate professional status.

If we are talking about a huge tax bill, I’m pretty sure you would benefit from hiring a good CPA who can cut your tax bill.