The Real Estate Professional Tax Loophole Under the Trump Tax Plan

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The real estate professional tax loophole is still a powerful one, if you qualify.

Here’s how it works. If your adjusted gross income is under $100,000, then you can take up to $25,000 of real estate loss as an offset. If your adjusted gross income is over $150,000, then you can’t take any loss. Between $100,000 and $150,000, the amount you can deduct is phased out.

That is unless you or your spouse (if you’re married, filing jointly) are a real estate professional (REP). In that case you can take all the loss as an offset against your other income regardless of your income and regardless of the amount of the loss.

Let me take a moment here and answer a question you may have right now. “I didn’t invest in real estate to lose money. Why would I have a loss?”

The answer is in the special tax benefits for real estate. I’ll talk more about that in the March 10, 2019 blog. Make sure you check that out!

In order to qualify for a real estate professional, there are several steps. These are ONLY available for those filing as single or head of household or married filing jointly. You cannot take that deduction if you file as married filing separately.

There are three parts to the test. You MUST pass all of them.

  • You (or your spouse) must individually have 750+ hours of qualified real estate activity. Plus you must have more hours in real estate activity than any hours spent in any other trade or business. The IRS calls for a very strict definition of what real estate activity is. You can’t make this up. You have to follow what they want.
  • You together with your spouse, if applicable, must have material participation with the property. That is 500+ hours of material participation. OR, if you don’t have a property manager, you have two other options to pass the material participation part of the test. You could have 100 hours and more than anyone else in regard to that property or you could have more hours than everyone else combined.
  • The third item is that each property must stand alone, unless you make an election to aggregate your properties on your tax return.

The real estate professional test is non-negotiable. There isn’t a lot of grey area here. Either you pass it, or you don’t.

Can we help? Give Richard a call at 888-592-4769 to decide if the coaching program or a private consultation directly with me would be the next best step for you.

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