“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.”
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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