The IRS has clearly struck pay dirt in their audits of real estate professionals (at least as far as the IRS is concerned), and so far it looks like the courts are upholding their audit findings.
If you have a loss with your real estate investments, you can take a loss of up to $25,000 against your income, provided your income is less than $100,000. If your income is more than $150,000, you can’t take any loss. Between $100,000 and $150,000 the loss amount phases out. That is, unless you are a real estate professional.
And people took that real estate professional loophole by the thousands. Unfortunately enough took it that shouldn’t have, that the IRS began targeting real estate investors for audit.
Their strategy is lined out in IRS Survival Guide for Real Estate Professionals with Real Estate Investments. You’ll find selected parts of the new IRS audit handbook along with answers that can get you out of hot water if this happens to you.
One of the first things they’re going to ask you (along with proof of material participation and real estate professional hours) is a copy of the Operating Agreement for your LLC, if your property is held inside an LLC. And then they’re going to look for specific language regarding guaranteed payments and your duties. If you don’t have these duties lined out, there’s a very good chance that you’ll lose the real estate professional argument right away. We’re seeing more and more auditors asking to see the LLC and since NONE of the ones I’ve seen (until now) have had the language they’re now looking for, there are real problems.
Megan from Business First Formations has gone through our Operation Guide for LLCs and updated it for the language you need to have if you’re audited. And it’s on special now along with the IRS Survival Guide along with the new “10 Secrets to Winning the Real Estate Professional Argument.”
If you have real estate inside an LLC, you need this information! And with the Operation Guide for LLCs with Real Estate, you can get this information for a fraction of the amount it would cost you for one-on-one time with an attorney to research and develop it.