Real Estate Professional Passive Loss Rules Exception – Paul Gaulkin CPA

a woman real estate professionalWhen it comes to passive loss rules that deal with real estate, a real estate professional may elect to treat all interest in real property trades and businesses as one activity.

The IRS defines a real estate professional as a person who derives more than one half of all their personal services from real property trades or businesses in which they materially participate. A real estate professional must have rendered a total of more than 750 hours of personal services during the tax year.

A real property trade or business basically means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.

Rental Activity Exception

If a person qualifies as a real estate professional, they are able to file as exempt from having any rental activities be treated as a passive activity. Rental activities are defined as activities in which real property or tangible personal property is used by non owners and amounts are paid by such non owners to the owner principally for the use of the property.

C Corporation Real Estate Professional

A closely held C corporation is considered a real estate professional for this purpose if more than 50 percent of its gross receipts, excluding portfolio income, are derived from real property trades or businesses in which the corporation materially participates.

Employees Exception

Services performed by a taxpayer as an employee of a company that is engaged in real property trade or business do not satisfy the time requirements of the real estate professional exception unless the taxpayer is at least a 5% owner of the employers company during the entire tax year.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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