YOU REALLY, REALLY WANT TO BE A REAL ESTATE PROFESSIONAL…

Today I was going through so many of my contacts in LinkedIn and I was choosing the ones that said “Real Estate Investor”. I chose quite a number of people because that was specifically who I wanted to group together to receive certain information concerning investing in real estate and the income tax benefits that come with that title. Then I realized that being a real estate investor brings with it some benefits but the most benefits are derived by those with the title of “REAL ESTATE PROFESSIONAL”!!! So many people invest in real estate throughout the United States because it is stable and gives you cash flow, appreciation, and income tax benefits. People start out with a single family residence or two or more that they rent out and then they might graduate to multifamily housing or self-storage units or triple net leases or strip shopping centers. People who invest in real estate for their business will invest in larger multifamily housing units, office buildings, hospitals, and so many other things. There is a huge benefit for the mid-size real estate investor to be classified as a Real Estate Professional because the income tax benefits are really HUGE!!! The real estate investor is limited to take a “passive activity loss” of $25,000 per year on his or her income tax return. But the benefits of doing a Cost Segregation Study and taking Bonus Depreciation could give you tens of thousands of dollars or even hundreds of thousands of dollars or more in “passive activity losses” on a single project in a single year depending on the size of the project, the year that the project is placed in service. But the burden of proving that you are a real estate professional is up to you when it comes to dealing with the Internal Revenue Service. And you want to be able to show them, the IRS, every bit of proof that you can that indicates that you are a real estate professional. Next week I will be posting an article that I have posted a good number of times giving you the definition, according to the Internal Revenue Service, of a real estate professional. But, when dealing with the IRS, even little things matter. Remember that I was a practicing Certified Public Accountant for over 50 years before getting into real estate and I dealt numerous times with the IRS representing my clients in audit situations. And I am here to tell you that even the little things matter when trying to prove your point to the IRS in order to, in this case, convince them that you are a real estate professional. Also remember that you are dealing one-on-one with an IRS Auditor, and you just have to convince them that you deserve the title of REAL ESTATE PROFESSIONAL!!! Then the file gets reviewed by the auditor’s supervisor, but, if the auditor put down that you are a Real Estate Professional, then they are going to fight to prove their point. Now you have got TWO people on your side!!! So, the first thing that I would do, if I were you, is to go directly to my LinkedIn page and my Facebook page and indicate there that you are a Real Estate Professional. Do not just say that you are a Real Estate Investor. As a Real estate Professional, you can also write that you also invest in real estate, manage your own properties, do income tax planning for the year end income tax preparation with your Certified Public Accountant and other things. My point is that anywhere you can delineate that you are a real estate professional as opposed to an investor, DO IT!!! It may mean very little, but it may mean a lot to the IRS agent that your CPA is trying to convince that you should be able to take an income tax deduction of $500,000 instead of $25,000!!! Have a safe and wonderful weekend. We'll all be back here on Monday, and we'll talk about what you need to know before investing in commercial real estate.