If you make over $150,000 per year, you can’t take your real estate losses against other income unless you meet the Real Estate Professional Status.
You can learn more about what that means, reduce audit risk and avoid the tax traps in our recent webinar. Go to http://www.RealEstateLoopholes.com to sign up for the link to this webinar.
There were a few questions we couldn’t get to. So, as promised, here they are with answer.
* I discussed the IRS’s issue with property managers for your property
Q: What about if you have a property manager for some of the properties and want to be a real estate professional? I have properties in NY, Washington, Oregon and CA
The IRS is going to have an issue if all you do is manage the property manager. They want to see that you’re actively involved with the properties. That means going there and viewing them. Talking to contractors. Talking to prospective tenants. Marketing. Put the “active” in activities to get the hours you need.
* I discussed that there were two requirements: Real Estate Professional status plus material participation. The later called for 500 hours per property.
Q: How can 500 hours per property per year be right? What if you own 100 properties? There’s not enough time in the year!!!!?
Exactly. That’s when you need to think about aggregating properties, if you want to take a loss on you property. By properly taking this election on your tax return, all of the properties aggregate into one economic group. And you only have to meet the hourly qualification once.
Q: What is con to aggregating properties?
The biggest issue to consider is that once you’ve aggregated them, you have to have a change in circumstances to de-aggregate them. Now here’s why that is important. If you end up selling a property at a loss and it’s still inside of an aggregated group, the loss will need to go against other the property. You don’t get an immediate deduction for the property loss. Your only hope in getting the benefit of that loss immediately is to de-aggregate the group. That means you need to change the group in some way PLUS you need to make an election to de-aggregate.
Real estate tax is complicated. We covered this and more in the webinar on June 30, 2012. If you missed it, you can listen to the replay at http://www.RealEstateLoopholes.com.