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Could You Qualify as a Real Estate Professional?

August 19, 2022

By Kevin Kalal, CPA MBT

If you’re a working professional who owns a rental property, you probably don’t introduce yourself at networking events as a “real estate professional.” According to the IRS, however, it’s possible you could—and reap massive tax savings as a result.

Here’s what you should know about the benefits of qualifying as a real estate professional.

What it takes to qualify

If you own at least one rental (yes, even AirBnb rentals), work in a real estate-related industry (e.g., a contractor who specializes in remodeling), or are invested in rental partnerships, you could qualify as a real estate professional. If you do, you could be privy to substantial tax benefits, including the ability to offset your ordinary income with losses generated from real estate.

To qualify, you must be a taxpayer who:

  • Performs more than 50% of your personal services in real estate trades or businesses in which you are consistently and substantially involved.
  • Spends more than 750 hours of services during the tax year in real property trades or businesses, such as construction, developing, buying, operating, managing, and brokering realty, in which you are consistently and substantially involved.

How to reap the benefits

Taking advantage of this law requires you to make an election on your personal tax return. Failing to make the election, even if you meet the requirements listed above, will disallow you from these tax benefits.

Now what?

If you qualify as a real estate professional, it’s important to take advantage of your newly acquired tax planning opportunities. For example, you may wish to make improvements to your properties to accelerate your deductions. Not only will this help you make the most of the real estate professional benefit—it can also help you build value into your realty.

How Abdo can help

Too many people miss out on a tremendous tax savings because they simply don’t know they qualify as a real estate professional. Don’t let this be you! It doesn’t hurt to see if you qualify, so if you think you could, consider exploring your options asap. Knowing where you stand can help you determine when and how to improve your properties, so you reap the full benefits of your new designation.

If you have questions about qualifying as a real estate professional, we’re here to help. Contact us today.


Meet the Expert

Kevin Kalal, CPA, MBT

Kevin’s focus is on developing creative solutions for minimizing taxes, managing cash flow and strategic planning.

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