Just a note before I get started: The Real Estate Professional status CAN save you a lot in taxes. But you need to get some basic items right. Otherwise, you can end up with a very costly IRS audit. The Real Estate Coaching courses in May highlight what it takes to legally take the Real Estate Professional Status, and why you might want to.
- The Operations Guide for LLCs with Real Estate Investments
- The IRS Survival Guide for Real Estate Investors
- Tax Implications of Real Estate Losses
Here are the highlights on the Real Estate Professional audits. For more details please sign up for the USTaxAid Coaching now.
In 2006, the IRS started sending out audit teams to audit anyone who had taken the Real Estate Professional status. By taking this election, the taxpayer was able to take a loss for the real estate they held. Without it, they might have had to suspend the losses.
There are three primary ways that you can expect a challenge if you are audited:
- Whether your activities qualify as true real estate activities
- The amount of hours you spend in real estate activities
- The number of hours you spend in material participation with the property
Initially, the IRS took the position that real estate agents could not take the real estate professional designation because one of the real estate activity designations was “brokering a deal.” And, the IRS reasoned, because the agents weren’t brokers, they couldn’t broker a deal. And taking it even further, the IRS determined that meant they weren’t real estate professionals.
The IRS lost the argument.