Tax
Real Estate Professional (§469(c)(7))
A tax status that recategorizes rental real estate from passive to non-passive — letting losses offset other income without the PAL limits.
Two tests must be met to qualify: (1) more than 50% of personal services performed in trades or businesses during the year are in real-estate trades or businesses, AND (2) more than 750 hours of services in real-estate trades or businesses.
Qualifying lets rental real-estate losses offset wages, business income, and other non-passive income — a massive tax planning opportunity for high-income owners.
Spouses' time aggregates for the test but each spouse must meet the test independently.
Common pitfalls
- Counting investor time, money management, or research as real-estate trade time — the IRS rejects these
- Not maintaining contemporaneous time logs — audit cases are won and lost on documentation
- Achieving the status without making the §469(c)(7) election — the election is not automatic
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