The Big Kahuna of Tax Tips

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“Real estate professionals” can claim unlimited investment property losses against their AGI regardless of how much they or their spouse earns.

Typically, taxpayers at high income brackets cannot claim losses on rental activities due to loss limitations. (See last week’s tip: The $25K Rental Loss Deduction.)

However, many of them are allowed to deduct unlimited losses on rental activities because they are “real estate professionals”

Real estate investors can qualify as “real estate professionals” if they spend at least 750 hours per year on their investment activities. A real estate sales license is not required and either spouse can qualify. Real estate brokers, realty sales agents, property managers, builders, contractors and leasing agents are all considered real estate professionals if they spent 750 hours on real estate business.

For example, say your AGI is $160,000, and as a result, you are not entitled to any property loss deductions because your AGI exceeds $150,000. However, if your spouse manages your real estate properties and spends more than 750 hours annually supervising the properties, making management decisions, inspecting properties, and supervising property sales and exchanges, then your spouse qualifies as a “real estate professional”. The result is that you and your spouse can claim unlimited property loss deductions from your properties because one of you qualifies as a “real estate professional.”

Everyone’s tax situation is different, and this information should not substitute professional advice. Taxpayers should always consult with their tax advisors to consider specific factors that might affect their situation. For more Tax Tips and FREE Property Management Software for real estate investors, check out TReXGlobal.com.

Did you miss our last tax tips?

Tax Tip #15: The “Other” Interest Deduction.

See more Tax Tips for Landlords.

Let us know what you think by commenting below. For questions about our blog, contact our editor at kim@joinaaoa.org.

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Tags: real+estate+forms, landlords, tax+tips, real+estate+tax+tips, real+estate+forms, apartment+owners, real+estate+investing, property+managers

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Posted on Monday, April 6th, 2009 at 12:24 pm and is filed under AAOA Forum. You can follow any responses to this entry through the RSS 2.0 feed.

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4 Responses to “The Big Kahuna of Tax Tips”

Kevin says:

April 7, 2009 at 6:51 am

I have a full time job but I did buy a distressed property in 2007 and I did spend well over 750 hours in 2008 to renovating, Fixing, renting, Advertising, cleaning, basically 100% management of 3 decker property and looking for other deals last year.

If I claim “RE Professional” for 2008, do I need to keep log of time to show 750 hrs worked ?
Kim Ezzell says:

April 7, 2009 at 12:06 pm

We’ve received a couple of questions on today’s tax tip regarding what type of records to keep concerning the 750 hours of ‘professsional’ service. Unfortunately, we just can’t answer specific tax questions — we have to leave that to the tax professionals. We can offer a couple of links to IRS publications that may help guide you. Happy renting, AAOA

Publication 527 and Passive Activity Lossses: http://www.irs.gov/publications/p527/ch03.html#en_US_publink100027374

Publication 925 and Material Participation: http://www.irs.gov/publications/p925/ar02.html#en_US_publink1000104579

IRS audit guide for passive activity losses and what they look for: http://www.irs.gov/businesses/small/article/0,,id=146318,00.html
AAOA - American Apartment Owners Association » Tired of Organizing - and Reorganizing Your Tax Records? Here’s Help says:

April 9, 2009 at 3:12 pm

[...] Software for real estate investors, check out TReXGlobal.com. See Crucial Tax Tips for Landlords. Let us know what you think by commenting below. For questions about our blog, contact our [...]
AAOA - American Apartment Owners Association » 7 Ways to Increase Your Rental Loss Deduction says:

April 13, 2009 at 12:45 pm

[...] in the activity, and the major benefit is that your losses can be unlimited. Many “real estate professionals,” can easily meet the requirements for material [...]