Home » DEDUCTIONS » Real-Estate Professionals – Do You Have More Deductions?

Real-Estate Professionals – Do You Have More Deductions?

By Stacie Clifford Kitts

Recently the IRS issued Headliner 271
Tips on Rental Real Estate Income, Deductions and Recordkeeping. This headliner is full of good info, but I thought it needed some expansion for Real Estate Professionals. So with that in mind, I have included some facts from IRS Publication 925 Passive Activity and At Risk Rules:

“Generally, rental activities are passive activities even if you materially participated in them.

However, if you qualified as a real estate professional, rental real estate activities in which you materially participated are not passive activities. For this purpose, each interest you have in a rental real estate activity is a separate activity, unless you choose to treat all interests in rental real estate activities as one activity. See the instructions for Schedule E (Form 1040) for information about making this choice.

[Stacie says: Be careful here, I have seen preparers treat rental real-estate owned by a real-estate professional as non-passive even when all interest are not treated as one activity. Although it is possible to meet the material participation requirement, its unlikely when there are many rental properties.]

“If you qualified as a real estate professional for 2008, report income or losses from rental real estate activities in which you materially participated as nonpassive income or losses, and complete line 43 of Schedule E (Form 1040). If you also have an unallowed loss from these activities from an earlier year when you did not qualify, see Treatment of former passive activities under Passive Activities, earlier.

Qualifications.

“You qualified as a real estate professional for the year if you met both of the following requirements.
“More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.
“You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.
“Do not count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer’s outstanding stock, outstanding voting stock, or capital or profits interest.
“If you file a joint return, do not count your spouse’s personal services to determine whether you met the preceding requirements. However, you can count your spouse’s participation in an activity in determining if you materially participated.”
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