I know many of you out there got into real estate because you heard of how great the tax advantages can be. Well, this can certainly be the case for most of you. You might even be already satisfied with the amount of advantages being in real estate has gotten you so far. But, you know what I’ve recently learned? That your tax advantages are MUCH greater when you file them as a ‘Real Estate Professional’!
Basically, the ‘Real Estate Professional’ status is a designation given by the IRS based on the number of hours that you put into real estate activities as compared to other activities of another field. And no, this doesn’t mean you have to become a real estate agent or a broker by occupation, and you most certainly wouldn’t have to drive people around showing them available homes or units, or putting out “for sale” signs or any of that other typical ‘realtor’ stuff.
The Real Estate Professional designation means that you, as an individual, spend a certain amount of time in real estate activities, not enough to occupy you full-time, but it does mean that you work like a realtor more than just doing it on the side. This could mean that you spend time locating, renovating, leasing units, or developing your own real estate portfolios, but yes, the designation includes being an agent, so if you’re already that, you are one step closer.
Anyway, the reason I’m sharing this post to you guys is because the United States Tax Court decided to make the lives of real estate pros easier by creating a way for them to accumulate enough hours to qualify as real estate professionals for purposes of the IRS passive loss rules in this case of Fred Chambers, a civilian Navy employee who owned a property that produced losses, considered the time he spent managing his individual property and the LLC to qualify as a real estate professional.
The rule now states that an owner of a rental property can deduct a maximum of $25,000 each year from his salary or business’ income.
This is great news, because not only will you be doing what you love, you will also be getting more benefits – no matter how big or small – that will contribute to the already existing advantages of being in real estate! So if you still haven’t filed your taxes under a ‘real estate professional’ designation, what are you waiting for?
Get all those tax advantages as a real estate professional!
All the best,