Real Estate Professional? Nonpassive Loss?

[kdhill]

My client owns several fast food restaurants that each operate under a separate s corporation. He and his wife are 50/50 owners in the s corporations. For several of these restaurants, he has purchased land and has overseen the construction of the building, etc. The real estate properties are held in separate LLC's (disregarded entities) that he and his wife own. The restaurants (operating companies) rent the properties from the LLC's are fair market value. (Self-rental)

I'd like to group the restaurants with the real estate holding LLC's for material participation purposes. Also, in order to take any losses generated by the real estate properties as nonpassive losses, he must be considered a real estate professional. Publication 925 states the following regarding a real property trade or business and what constitutes a real estate professional (besides the amount of time spent on real estate activities:

Real property trades or businesses. A real property trade or business is a trade or business that does any of the following with real
property.
• Develops or redevelops it.
• Constructs or reconstructs it.
• Acquires it.
• Converts it.
• Rents or leases it.
• Operates or manages it.
• Brokers it.

Would it be a stretch to consider my client a real estate professional in the above scenario?

[ATSMAN]

Without looking at the regs. I would be hesitant to classify him as a real estate professional because all the real estates that you mention are rented to his own Sub S corporation.

I have a small car dealership as a client and he rents his front building, garage, parking lot owned by his family trust to his car dealership business a 3 member LLC.

[TaxGuyBill]

For several of these restaurants, he has purchased land and has overseen the construction of the building, etc.

Was that done in the current year? If not, I don't see how he could have met the 750 hour or the 1/2 time requirement.