This is not really a tax question, but the subject came up during a discussion of tax preparation. I am an employee in a career unrealated to real estate. I am told by my tax planner that to use losses from real estate to reduce the tax on my wages, I need to be a "real estate professional" with at least 750 hours actively managing real estate per year, and work hours in real estate that add up to 50% of work hours in my job. I qualify in terms of the hours that I log in real estate. Apparently, investors have been challenged despite logged hours because the I.R.S. determined that they were not "real estate professionals." Case law provides that if a person is a Licensed Real Estate Agent, they are deemed a real estate professional. If anyone can add or clarify anything about the discussion above, that would be appreciated, but my post question is this: Is there any reason, as an investor, that one would NOT want to be a licensed real estate agent? Are there any conflict of interest or obligitory concerns that would make having an agent's license undesirable for an investor?
I believe he is referring to being a RE professional and get those types of tax incentives. You can be just a regular Joe, do some deals, and take losses as long as you submit the required paperwork.
it’s tough keeping up with all the tax deductions! holy crap!
just holding a real estate license does not necessary make you a real estate professional in the eyes of the IRS. The tax world is a parallel universe to real world. In order to be able to take passive rental activity losses in excess of the $25k again income, you need to be a “real estate professional” and meet both the 750 hours test AND derive a majority of your income from real estate activities. This is NOT a question of deductions, but how gains and losses are taxed (or not). If you have a full-time job with W-2 income, you are unlikely to meet the test. Keep in mind that these losses are not lost; just suspend and can be partially or fully “unlocked” either at the time of the sale of a property or if you have a very low year of income.
That’s my take on this having discussed several times with my long-time tax professional (EA). I would highly recommend to get professional tax consultation before attempting to take on that classification.
i’ve been informed that if you take excellent notes on your activities, meet all of your business entity paperwork - annual meetings, etc. - this will increase your odds that the IRS will recognize your business activities and your tax deductions, gains, losses will be fully or at least partly recognized.
if you keep detailed notes of what you you do, when you do it, where you traveled and how far and you keep these dates in order (day planner) and a black book for notes on phone calls, emails, etc. - you can’t go wrong with that.
to me, i do it just to keep up with the business of the day. if i don’t - i’m done. omg and receipts - keep them all, document and cross reference them to your notes. it sounds like a lot, but if you keep up on it - it gets easier. it’s the “getting used to” part of documenting YOUR LIFE that is hard at first.
aak - what do you think of this? i’m actually quite interested in what you said. i’ve never had a problem with this. my CPA says i’m good to go.
i document my hours daily. i have a full-time “normal” job still (quiting by next spring) and i work at my businesses about 35 hours a week. (75 hours total on average). additionally - this, right now, what i’m doing - i consider this a work activity - networking, marketing, etc.