Michael Choate Associates CPA

Are You a “Real Estate Professional” For Tax Purposes?

If you are a "real estate professional," generally your losses from your real estate activities are fully deductible. If you are not a "real estate professional" the deductibility of your losses from your real estate activities may be limited.

Real Estate Professional - The IRS defines a real estate professional as one whose real estate business activities are more than half of his total business activities. This is measured in time spent in the business activities. Also, a "real estate professional" must spend more than 750 hours in real property businesses and rentals in which he "materially participates."

Material Participation - A real estate professional may have different levels of involvement in various real property businesses and rentals. The material participation test is done separately on each business or rental. To be considered materially participating, a real estate professional a) spends more than 500 hours in the business, or b) spends more than 100 hours in the business and spends more time in the business than anyone else. A real estate professional who is materially participating may usually fully deduct losses from a real estate business.

NOTE: If you have a full time job in non real estate field, you will not qualify for the real estate professional status.

If you have any questions or would like to discuss your real estate business activities, please e-mail mike@choatecpa.com.