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.