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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.
SurferTypically, 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.”

Everyones 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.
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  • Kevin

    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 ?

  • 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/

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