Update on Real Estate Professional IRS Audits


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5-13-1If you claim the Real Estate Professional status on your tax return, today’s blog is a must read.

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.

And as a special bonus, the IRS Survival Guide for Real Estate Professionals is offered as a FREE bonus if you sign up before the end of the month for monthly USTaxAid Coaching.

re_3-pak_apr10_3d_thumbThe bonuses for signing up now are:

  • 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.

5-13-2So the IRS wanted to prove they didn’t have a legitimate deduction.

There are three primary ways that you can expect a challenge if you are audited:

  1. Whether your activities qualify as true real estate activities
  2. The amount of hours you spend in real estate activities
  3. 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.

Real estate agents CAN take the real estate professional status, assuming they meet all the other requirements



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