I am looking at turn-key investments out of state and was wondering about if it would make it more difficult to get, when the time comes, to be a Real-estate professional, recognized by the IRS.
I understand there is the 750 hours/year + > 51% requirements, so theoretically I could be investing anywhere, but obviously not being in the area means I must rely on property management and others to do some of the work, so does it make it more difficult to get when investing remotely (in a way that the IRS will accept, of course)?
Yes I believe it will be difficult but check with your CPA, they will know.
Hi Ron, well the thing with real estate professional is it goes a bit further than that. You have to not only meet the minimum number of hours per year working on real estate to qualify, you also can't have any other job that you spend more time on than real estate. Typically just owning rental properties, regardless of area, won't qualify you. You won't spend enough time on them (even if they are local), and you wouldn't be able to have any other job on top of it. Flipping houses, now there's more room with that for sure, but it would still be your primary gig.
Real estate professional really requires you to be working in the industry more than just investing in it. Depends on how exactly you do it, but just rentals won't do it and you can't have another job.
I've always invested in turnkeys myself, but owning rental properties never qualified me until I quit my corporate job and started a real estate based company (active company, not just one that holds properties).
If you want to talk to someone about it, look up one of the blog authors- Amanda Han. She's the best.
Hope that helps?
I have been audited on this before... ( it was actually for the go zone properties I bought in Mississippi post Katrina).. my account went to the meeting I never do. he just showed him copies of my brokers licenses ... web pages... letter head and of course pretty easy as well tax return that showed 100% of income was 1099 or sec. C.
its when you have significant W 2 income that is not RE related that it gets a little dicy.
He was done in 20 minutes. and I was fine... But there were many who bought go zone and did not realize you had to be in the BUSINESS to get the year one 50% bonus depreciation.. so you had scammers selling these to high wage earners who all they got for the investment was audited and the deduction disallowed.
Same with proving your airplane is a business expense you need super copious record keeping they love nailing you for those huge deductions when our really just flying your family to holidays.
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