Real estate professional election

[LCP]

Never before advised a client at the outset on this issue.

I see an election to treat all properties as one activity.

Client had a few investment properties and one rental prior to 2009. In 2009 he acquired two properties...... can I "elect" real estate professional treatment on those two separately? Is it too late to elect for the other properties if I wanted to?

If taxpayer is retired with a consulting business, a rental property and the two properties purchased this year, how is the material participation testing done? Perhaps that is the reason to elect to treat them all as one.

Fortunately the bulk of his efforts in 2009 were related to the two new properties.

[Gretel]

I researched this somewhat but not all the way through since I was not the one doing the tax return. Here is the little I still remember: The material participation test has to be applied to each property separately unless election is made to combine. Any property where the material participation test fails cannot be included in the equation for the real estate professional and remains passive activity.

I am interested how your client keeps records of his hours. I see this as this as the greatest challenge.

[DaveO]

The IRS has held that a Broker's License is required to claim RE Pro status. This has been discussed here before with some difference of opinion on this point.

[gkaiseril]

The IRS has held that a Broker's License is required to claim RE Pro status. This has been discussed here before with some difference of opinion on this point.

Taxpayers also involved full time in construting and rehabbing property, as well as those who manage real esstate are considered real estate professionals and do not need a real estate sales or broker license.

http://www.irs.gov/businesses/small/article/0,,id=146825,00.html

" LAW: Under IRC § 469(c)(7) & Reg. 1.469-9, if the taxpayer spends the majority of his time in real property businesses, meeting the 1/2 personal services and 750-hour tests, rental real estate losses are no longer per se passive. If the taxpayer materially participates in each rental real estate activity, losses are fully deductible. If not, even though the taxpayer is a real estate professional, losses are passive and deductible only up to $25,000 (if MAGI is less than $100,000). The IRC § 469(c)(7) does not trigger carryover losses from prior years."

http://www.irs.gov/businesses/small/article/0,,id=146828,00.html