WHAT IS A REAL ESTATE PROFESSIONAL?

PART II OF II… THE END… If you are not a real estate professional, your loss, a passive activity loss, is limited to $25,000 per year. A lot of people look at this and say that I have to be a Real Estate Professional and might change their life to become one. That may not be too smart from an emotional standpoint, a family standpoint, or a financial standpoint because if you quit your day job to get into real estate. If you don’t have the knowledge to do it full-time to support your family, the real estate market will stagnate due to the increases in the interest rate we’ve all been seeing, and then you’re in trouble. That may slow down the market, but it’s not going to stop it. However, a new investor will be affected a lot more than a seasoned investor because he may not know how to navigate through this time, and he may not have the resources to make it through the higher interest rates, which will increase the monthly payments of the mortgage might price him out of the market. Now, I’m going to give you the pot of gold at the end of the rainbow for the Real Estate Investor. It may not seem like a pot of gold or a pot of silver or bronze, but it’s a very large income tax deduction or loss that WILL reduce your income taxes every year until you become a Real Estate professional. If someone told me that I could take a deduction or a loss on my tax return of $25,000 yearly against my ordinary income for a long time, I wouldn’t have known about the Bonus Depreciation rules. If I were a new investor, I would be happy for that deduction because it would save me income taxes for a long time. And, when you have more experience investing in Real Estate, the market will still be there to invest your money in. Also, you have a capital gain when you sell that property, the one that you couldn't take more than the $25,000 passive activity loss every year. You still have not offset the passive activity loss against your other income, and you CAN offset whatever passive activity loss still exists against the gain on the asset's sale. That could be a HUGE advantage. The income tax laws in the United States are incredibly complicated, and so many questions have to be asked and things that must be taken into consideration. I am just giving you a taste of what I know here. Remember that I have over 50 years' experience as a practicing Certified Public Accountant and that I STILL take continuing education classes in income taxes given to CPAs, so I know so much. Always ask a qualified CPA for advice when delving into anything having to do with income taxes, especially income taxes having to do with real estate transactions. The last thing I will bring up is that the economy and Real Estate are on a roller coaster ride, as they have been since the beginning of time. If the interest rates go down, the economy flourishes. If the interest rates go up substantially, the economy will slow down, and the Real Estate market could stagnate. The seasoned Real Estate Professional has the resources and knowledge to ride this roller coaster to the end. The novice might just be hurt. There are other advantages of “only” being a real estate investor, but I don’t have the time or the space to list them here. If you would like more information, please contact me at (818) 298 – 4000 after 10 AM Pacific Time, and yes, that’s seven days a week. But PLEASE do not call me when Notre Dame is playing football on TV. You can also send an email to me at [email protected] anytime, and I will try to get back to you in a timely manner.