Real Estate Professional

[AccTaxMan]

A rental property owner is trying to determine whether he can be considered a 'real estate professional'. There is a set of rules to determine 'material participation'. And then there is another set of rules to determine whether a taxpayer can be considered a 'real estate professional'. In order to qualify as a 'real estate professional', does the taxpayer has first to qualify as 'materially participate' in the rental activities?

[Bees Knees]

TheTaxBook page 7-13 says:

Qualification. The taxpayer qualifies as a real
estate professional if both of the following
requirements are met:
1) More than half of the personal services the
taxpayer performed in all trades or businesses
during the tax year were performed in real
property trades or businesses in which the
taxpayer materially participated, and
2) The taxpayer performed more than 750 hours of services during
the tax year in real property trades or businesses in which
the taxpayer materially participated.

On the same page, TTB goes on to say:

Election to combine rental activities. For purposes of qualifying
as a real estate professional, each of the taxpayer’s rental activities
are treated as separate activities unless the taxpayer elects
to treat all interests in rental real estate as a single activity. Failure
to make the election can trigger passive loss limits for real estate
professionals.

So to answer your question, yes passing the material participation rules is one of the qualifications to passing the real estate professional rules. And if the taxpayer does not elect to group all activities together, he/she must pass the material participation rules for each rental activity as well. If all activities are grouped together, the material participation rules can be met by considering all activities as one activity.

[AccTaxMan]

TheTaxBook page 7-13 says:



On the same page, TTB goes on to say:



So to answer your question, yes passing the material participation rules is one of the qualifications to passing the real estate professional rules. And if the taxpayer does not elect to group all activities together, he/she must pass the material participation rules for each rental activity as well. If all activities are grouped together, the material participation rules can be met by considering all activities as one activity.

So the key is to make the election to aggregate all the rental activities. Thank you.

[solomon]

So the key is to make the election to aggregate all the rental activities. Thank you.

Yes, but keep in mind any suspended losses are not available with the sale of any properties other than all of them being sold.