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
Related service
See tax and CPA servicesHave a Real Estate Professional (§469(c)(7)) situation in your business?
Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.