WHAT IS A REAL ESTATE PROFESSIONAL?
Paul Levine
Commercial Realtor and Real Estate Advisor | Retired CPA with over 50 years of income tax experience that no other Commercial Realtor has, Income Tax Consultant and unmatched Creatively!
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PART I OF II…
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I am reposting this article because the article I posted last week talked about the different income tax treatments given to a Real estate Professional versus a Real Estate Investor.? The difference between a Real Estate Professional and a Real Estate Investor is HUGE!!!? When I say HUGE, we are talking about a principle that has to be understood, and you make major life decisions based on this information.? But there are still benefits to being “just” an investor and?please read on because I have added something to the article.
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I told you that only a real estate professional can take an unlimited amount of loss from real estate holdings. When I said that, I was talking about multifamily housing units.?Here is the definition of a Real estate Professional.
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A REAL ESTATE PROFESSIONAL IS:
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An Individual Satisfies the Real Estate Professional Eligibility Requirements When Three Requirements Are Met
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1.?? Rental real estate is owned. The individual must own at least one interest in rental real estate (§1.469–9(b)(6)).
2.?? The 50% test. More than 50% of the individual’s personal services during the tax year must be performed in real property trades or businesses (defined below) in which the individual materially participates (defined below).
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3.?? The 750-hour test. The individual must perform more than 750 hours of service in those same trades or businesses (§469(c)(7)(B)).
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Tax practitioner planning. When considering the RE professional time tests, each spouse must be considered independently. Spouses’ time cannot be combined to determine if the RE professional tests are met.
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So basically, you have to own real estate, and I am not so certain about that (more about that next week), and 50% of your time and 750 hours must be spent on real estate endeavors. If you have a full-time job and spend, as we all do, 2,000 hours in a year, you CAN NOT qualify as a real estate professional unless that full-time job is in the real estate field. That means?that if you don't qualify as a real estate professional, your passive activity losses are limited to $25,000.