Gang, I know it's been awhile since I've posted -- but I'm going through an odd situation with the IRS that I'd like to ask for some help on. It seems they've been especially brutal the last few years to a lot of folks, myself not excluded.
Normally each year, I write off around $20-25k of real estate related losses against my personal tax return thanks to my rental properties (depreciation, rental expenses, etc) -- but recently the IRS has informed me that they won't be accepting this deduction any more. Why? We make too much money from our W2 jobs, and do not have "Real Estate Professional" status. This translates to about $5000-$7000 extra a year in taxes, which I'm not thrilled about + pretty much nixing half the reason I chose to invest in rental real estate to begin with (passive losses). I'm looking for a way to keep this money from slipping through my fingers.
According to the IRS, to qualify as a real state professional you've got to meet these two conditions:
1. More than one-half of the personal services you perform in all trades or businesses for the tax year must be performed in real property trades or businesses in which you materially participate (you must spend more hours on real estate activities than non-real estate activities, to prove that you earn your living in the real estate world), and
2. You must perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. (This minimum-hour requirement prevents a retiree who spends 400 hours a year managing a rental property from qualifying).
I don't keep a tally of my hours as of right now, but believe I could possibly meet condition 1 due to the time I invest in my business, and the time I spend looking at real estate deals, following the real estate market, etc -- but it's grey. Condition 2 seems really hard to meet if you have any kind of full time job at all, but it's plausible -- and I suppose provable if I were to begin keeping a time log.
Has anyone done this, and can you share your strategy please? If you need to PM me because you don't feel comfortable throwing it in public, feel free to hit me up here or on Facebook if we're linked.
I've got a pretty solid accountant (Who is a member here), and he's advising me to forget about it -- unless I (or my wife) want to start doing real estate full time (Which is impossible, because we have full time jobs we depend on right now). Otherwise, he says it's going to be hard to prove -- and I'd have to be prepared for a fight with the IRS anytime they want to challenge me.
Reference:
http://www.forbes.com/sites/anthony...gures-out-the-real-estate-professional-rules/
http://www.bankrate.com/finance/taxes/earnings-too-high-claim-passive-losses.aspx
Normally each year, I write off around $20-25k of real estate related losses against my personal tax return thanks to my rental properties (depreciation, rental expenses, etc) -- but recently the IRS has informed me that they won't be accepting this deduction any more. Why? We make too much money from our W2 jobs, and do not have "Real Estate Professional" status. This translates to about $5000-$7000 extra a year in taxes, which I'm not thrilled about + pretty much nixing half the reason I chose to invest in rental real estate to begin with (passive losses). I'm looking for a way to keep this money from slipping through my fingers.
According to the IRS, to qualify as a real state professional you've got to meet these two conditions:
1. More than one-half of the personal services you perform in all trades or businesses for the tax year must be performed in real property trades or businesses in which you materially participate (you must spend more hours on real estate activities than non-real estate activities, to prove that you earn your living in the real estate world), and
2. You must perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. (This minimum-hour requirement prevents a retiree who spends 400 hours a year managing a rental property from qualifying).
I don't keep a tally of my hours as of right now, but believe I could possibly meet condition 1 due to the time I invest in my business, and the time I spend looking at real estate deals, following the real estate market, etc -- but it's grey. Condition 2 seems really hard to meet if you have any kind of full time job at all, but it's plausible -- and I suppose provable if I were to begin keeping a time log.
Has anyone done this, and can you share your strategy please? If you need to PM me because you don't feel comfortable throwing it in public, feel free to hit me up here or on Facebook if we're linked.
I've got a pretty solid accountant (Who is a member here), and he's advising me to forget about it -- unless I (or my wife) want to start doing real estate full time (Which is impossible, because we have full time jobs we depend on right now). Otherwise, he says it's going to be hard to prove -- and I'd have to be prepared for a fight with the IRS anytime they want to challenge me.
Reference:
http://www.forbes.com/sites/anthony...gures-out-the-real-estate-professional-rules/
http://www.bankrate.com/finance/taxes/earnings-too-high-claim-passive-losses.aspx
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