Burt M. Polson | Napa Valley and Vallejo's Commercial Real Estate Broker

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Napa Valley & Vallejo, California

Passive Losses For Real Estate Professionals

Passive losses for real estate investments - real estate professionals vs. non-real estate professionals:

If someone has Passive Losses (Losses from Real Estate Rentals) they can deduct up to $25,000 of those losses if their income is below $100,000.  If they earn more than $100,000 they lose $1 of deduction for every $2 of income, so if they earn more than $150,000 they can deduct no losses.

A Real Estate Professional does not come under those restrictions and can deduct losses even if they earn more than $150,000.  However, one of the many requirements is that they must work more than 750 hours in real estate activities which are defined as any real property, development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing or brokerage trade or business.

As you can see, full-time Real Estate Seminar Professionals do not qualify, nor does anyone in the fields of lending, escrow, appraisal, title, home warranty, etc.  Also, there are so many other restrictions on who “operates” or “manages” that it is impossible to explain it in an email, but if you do all of your own management of your properties you would qualify.

Meeting the Passive Loss regulation is extremely difficult and no one keeps complete contemporaneous records of time spent on each activity.  Plus, if Passive Loss deductions can be disallowed we’re talking “bucks” and many of these taxpayers are in the higher tax brackets.  Therefore, the rumor is that the IRS is auditing about 53% of Passive Loss Deductees this year and the rest next year.  Good Luck.

-Duane Gomer Seminars

An ACRES Real Estate Services, Inc. Company