Real Estate Professional Tax Breaks


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realestate proffessional

Without a doubt, the number one topic for questions is “real estate professional”. How do I claim it? Do I qualify?

If you have a particular set of circumstances and think you may benefit from being called a real estate professional, check out the “Real Estate Professional” home study course. Right now, it’s part of the Coaching program and available, along with 5 other courses, for just $67/month. You can quit the program at any time. Join here at: http://www.ustaxaid.com/coaching-program/

If you’re reading this more than 30 days after the coaching course was posted, it may now have been moved to the shopping cart. (We keep coaching courses up for 3 months). After that, they are up for sale for $99 – $199, depending on the program.

Here’s a question I received after doing a podcast interview.

Q: I heard your interview on Jason Hartman’s program. I am a commercial real estate appraiser. Also I have two raw land investments and two mortgage investments as a hard money lender. I also have my real estate brokers license. Would I qualify for the real estate professional exemption?

A: Let’s start really quickly with why you may want to be a real estate professional.

If you have adjusted gross income (AGI) under $100K, you can take a real estate loss of up to $25 K. If your AGI is over $150K, you can’t take any of the loss against other income. Between $100K – $150K, the amount you can take phases out.

The exception is if you or your spouse (if you are married, filing jointly) is a real estate professional. If you are, you can take an unlimited amount of deduction.

I have a whole home study course on this, so I’m going to only be able to hit the highlights in a blog post.

There are three tests:

#1: You (or your spouse) individually must have at least 750 hours in real estate activities and more than any other trade or business.

In this case, you’ll need to look at how many hours you’re spending in everything you do and what qualifies as real estate activities. Being an appraiser does not. Being a broker does. There is a full list of these in the Real Estate Professional home study course.

Also, if you are married, one of you has to qualify individually. You can’t combine hours.

#2: You AND your spouse (if married filing jointly) must have material participation in the property. There are three ways to qualify for this:

  • 500 or more hours in material participation
  • 100 or more hours and more than anyone else
  • More than everyone else combined

If you have a property manager, the IRS says that you can only use the 500 hour test.

You need to also know what material participation actually is and make sure you have activities that qualify.

#3: Each property stands alone for test #2 unless you make an aggregation election on your tax return.

There is a downside to the aggregation election if you later sell at a loss, so make sure you think through all ramifications before you take that election.

The real estate professional election gives you great benefits, but it may be hard for some people to qualify for. Talk to an expert and make sure you’re getting good solid advice for your circumstances.


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