Real Estate Professional Tax Designation By Getting My License?

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Real Estate Professional Tax Designation By Getting My License?

Ashneel Reddy
New to Real Estate · Tracy, CA · Member since 2017 · 3 posts · 1 vote

Hi,

I am in a situation where I am unable to claim losses from real estate due to active income being over the limit. If my wife gets her real estate license does that automatically give us the real estate professional designation for tax purposes?

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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
5y
Originally posted by @Ashneel Reddy:

Hi,

I am in a situation where I am unable to claim losses from real estate due to active income being over the limit. If my wife gets her real estate license does that automatically give us the real estate professional designation for tax purposes?

The status is a tax concept and is not related to the license. There are extensive hours requirements. 

For RE pro to deduct RENTAL passive loss, they have to meet two requirement:

  1. - First be RE pro. Meet two personal service test. ( For a joint return, either spouse must separately satisfy the two tests - meaning husband cannot meet one service test and spouse can meet other or vice versa). But MP of one spouse is counted for other spouse.
  1. - Materially participates in real property trade and business (taxpayer can counts his/her spouse participation to determine the material participation) - Seven test rule

For individuals with full-time jobs outside real estate, the 50% rule is just as likely to cause problems as the 750-hour rule. However, in cases where a spouse works full-time outside real estate and the other spouse does not, it may be possible to structure the other spouse's time to pass both the 50% test and the 750-hour test. 

You should also consider aggregating rental activities when the spouses participate in more than one such activity. However, the aggregation election makes sense only when it converts passive losses that would otherwise be suspended under the PAL rules into currently deductible nonpassive losses. Even then, the you must carefully consider any potential negative effects of aggregating the activities.

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  • Mike S.
    Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes
    5y

    @Ashneel Reddy

    She would need to work as a real estate agent enough hours per year and her income should be primarily from it.

    1Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y

    A license has nothing to do with it. You have to be working as a RE professional in some capacity for the required hours. 

    Being a realtor AND putting in the hours would be one way to qualify.

    1Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    5y
    Originally posted by @Ashneel Reddy:

    Hi,

    I am in a situation where I am unable to claim losses from real estate due to active income being over the limit. If my wife gets her real estate license does that automatically give us the real estate professional designation for tax purposes?

    The status is a tax concept and is not related to the license. There are extensive hours requirements. 

    For RE pro to deduct RENTAL passive loss, they have to meet two requirement:

    1. - First be RE pro. Meet two personal service test. ( For a joint return, either spouse must separately satisfy the two tests - meaning husband cannot meet one service test and spouse can meet other or vice versa). But MP of one spouse is counted for other spouse.
    1. - Materially participates in real property trade and business (taxpayer can counts his/her spouse participation to determine the material participation) - Seven test rule

    For individuals with full-time jobs outside real estate, the 50% rule is just as likely to cause problems as the 750-hour rule. However, in cases where a spouse works full-time outside real estate and the other spouse does not, it may be possible to structure the other spouse's time to pass both the 50% test and the 750-hour test. 

    You should also consider aggregating rental activities when the spouses participate in more than one such activity. However, the aggregation election makes sense only when it converts passive losses that would otherwise be suspended under the PAL rules into currently deductible nonpassive losses. Even then, the you must carefully consider any potential negative effects of aggregating the activities.

    [email protected]941-914-7779
    INVESTOR FRIENDLY CPA®4.9242 Reviews
    WebsiteView Page
    TaxMD® | Tax Planning Software
    WebsiteView Page
    2Reply
  • Ashneel Reddy
    OP
    New to Real Estate · Tracy, CA · Member since 2017 · 3 posts · 1 vote
    5y

    Thank you all. I appreciate the responses. 

    0Reply
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