Safely Using Real Estate Professional Status To Pay Less Tax

This post is in: Real Estate


The real estate professional status can be a godsend if you are holding real estate that is losing money.

Here’s the deal on deducting real estate losses:

You can deduct up to $25,000 of real estate losses in which you actively participate provided you make less than $100K per year.

If you make over $150K per year, you can’t deduct anything.

Between $100K and $150K, the amount of loss phases out.

If you’re a real estate professional with material participation, then you can deduct all of your loss no matter how much the loss is and now matter how much the income is.

That’s the simple explanation. But it gets a lot more complicated from there:

  • If you make less than $100K, you still need active participation. Something as simple as holding your property in a Limited Partnership can cause a problem here.
  • You can be a real estate professional based on your ownership in a real estate related business or hours you spend in real estate activities.
  • You must have material participation in the properties to qualify for the real estate professional exemption.

And add to all this, the IRS is extensively scrutinizing anyone who takes the real estate professional status. So, make sure your paperwork and records are in order!


  1. Peter Gale says:

    So there has been alot mentioned regarding the material participation regarding the real estate
    profesional status. so a helpful blog would be entitled. The Anatomy of a Successful Real Estate Professional Audit.
    Today we will disclose both the specfic types of material participation and % of those activities of the total time spent that has allowed investors to use this deduction.Yes you can call administration (moving paper, paying mortgages,HOA’s) servicing assisting investment properties professional participation, but you must also show (x) number of hours of the 750 painting showing the home landscaping etc. WHAT IS THAT %? Peter

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