Real Estate Professional

[Hamacher]

I have a client that is a realtor (both Husband and Wife) and also has some rental properties. He is saying because he and his Wife are both "in real estate" he is deemed a real estate professional for purposes of the rental properties. The reason it has come up is because he has been denied an earned income credit because the rental income is coming through as investment income.

Any thoughts?

[Lion]

Step through the requirements to qualify as a Real Estate Professional for tax purposes to see if your clients qualify. Pub 527 is one to read, especially the second two columns of page 13.

https://www.irs.gov/pub/irs-pdf/p527.pdf

[ATSMAN]

I have a client that is a realtor (both Husband and Wife) and also has some rental properties. He is saying because he and his Wife are both "in real estate" he is deemed a real estate professional for purposes of the rental properties. The reason it has come up is because he has been denied an earned income credit because the rental income is coming through as investment income.

Any thoughts?

This a bit tricky when they claim to be real estate professionals.

1) They must get more than half of their income from the real estate business in which they materially participated. If they were employees less than 5% owner in the realtor business that don't count.

2) They performed more than 750 hours in which they materially participated in the rental business.

[Lion]

And, those requirements may be on a property by property basis unless they have grouped properties. Also, each taxpayer has to meet the requirements on his own, so you may end up with one spouse a RE pro and the other not. There are some old decision-tree type articles on IRS.gov, but they are prior to the NIIT. Charge your clients for your research!

[Hamacher]

Thanks

Thanks Everyone... that was helpful.