IRS Looking Closer into Real Estate Professionals..Taxation

Just when we were wondering what's next? We found it. So what do we do now when it comes to Destin Condos? We have to dig a little deeper if we are in the business of condo or real estate rental.

IRS Gets Picky About Who's a Real Estate Pro The Internal Revenue Service (IRS) is taking a closer look at income tax statements submitted by individuals claiming to be real estate professionals, given that the agency has released new guidelines regarding this tax status.Licensed real estate agents and brokers do not always qualify for real estate professional status under the new rules, which mandate that individuals spend no less than 750 hours on qualified real estate activities: developing, redeveloping, constructing, reconstructing, acquiring, converting, renting, operating, managing, leasing, or selling property. This means that those with full-time jobs elsewhere cannot claim to be real estate professionals. Additionally, the IRS says losses tied to real estate activities are either passive or materially participating passive, with passive losses deductible only from passive income and materially participating passive losses deductible from other income.Those who use limited partnerships to hold property are not considered to be materially participating, and the agency is increasingly targeting limited partnerships for auditing. The IRS also is looking to make sure those claiming material participation either work 500 hours per property or aggregate the properties into one 500-hour period, and they are cracking down on those who do not meet this benchmark.Real estate investors are eligible for $25,000 in deductions from passive income up to $100,000 in taxable income; while real estate professionals do not have dollar or income limits, making the distinction ever-important to the tax planning process.

Source: Realty Times, Diane Kennedy (07/17/08)

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