Acquiring real estate professional status is a powerful tax tool for high-income investors. It enables you to lower your tax exposure substantially. Once you attain the level of a real estate professional, it can help you reduce your taxable income by writing off sizable passive losses.
Real estate professional tax status helps you convert passive losses into ordinary deductible losses. If your investment is in real estate, MV Realty Georgia can significantly help you reduce your tax liabilities.
What is Real Estate Professional Status?
Real estate professional status is the name given to a person that demonstrates that they work in real estate and related businesses nearly all the time. The law incorporates unique benefits to encourage certain activities, and this is one of them. MV Realty Georgia can help you claim professional status if your primary work is in real estate.
Who qualifies as a real estate professional?
Under IRS, to qualify as a real estate professional, you should satisfy the following conditions:
- More than half of the total services performed within the year of taxation should be in the real estate business;
- You spent at least 750 hours working on real estate within the year of taxation; and
- Material participation in real estate activities.
Consequently, the above criteria ensure that only those who meet all the conditions benefit from real estate professional tax status. Thus, if you wish to benefit from real estate professional status, you must spend most of your time performing real estate business.
Notably, the test for qualification as a real estate professional is administered every year. That means you may qualify for the same in some taxation years but fail to qualify in others. In addition, similar activities in real estate may result in passive losses in some years and fail to do so in other taxation years.
Your losses must only be related to real estate to benefit from professional status. This means that you must demonstrate losses in your real estate activities to profit from real estate professional tax status.
Nearly all taxpayers with a few rental properties find it hard to acquire real estate professional status. However, MV Realty Georgia can help you maintain a comprehensive record of services. Keeping a record of the time spent on real estate activities is crucial as it enables you to meet one of the qualifications of a real estate professional. In effect, you must be very active in the real estate business.
Aggregating All Your Real Estate Properties
To successfully reach 50 percent and the minimum threshold of 750 hours, you should treat all your real estate properties as a single activity. Failure to do this places you in a difficult situation where you must demonstrate that you worked for 750 hours yearly for each property.
By becoming real estate professionals, investors can benefit by utilizing their losses and depreciation to their advantage.
Given that there are several considerations when going for real estate professional status, it is essential when pursuing real estate professional status to consult MV Realty Georgia for assistance.