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 Steve R Patterson
 46  7727  11/22/2023

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Tax Benefits of Being a Real Estate Professional

Tax Benefits of Being a Real Estate Professional

Mar 06 2020

Being a real estate professional comes with a lot of benefits, especially on tax. Most countries including the US have a progressive taxation method. This implies that your tax increases as you continue increasing your wealth. However, as a real estate professional, you can enjoy reduced tax rates. Read on to learn more about tax benefits of being a real estate professional. But first, let’s discover how you can qualify as a real estate professional.

How to Qualify as a Real Estate Professional

To become a professional in real estate, you don’t have to be a realtor with a license. You even don’t have to have a real estate educational background. Here are some of the guidelines that the IRS has put in place to qualify as a professional.

•Number of hours

You have to spend more than 750 hours of actively participating in real estate businesses. The 750 hours threshold is the minimum number. IRS often audits any professional and doesn’t give any reductions in the event some hours are missing.

•Active involvement

About 50 percent of your time needs to be spent in the management and service provision of the rental property. Unless you’re actively involved in the activities of your rental property, you cannot claim passive loss tax reductions.

•Not engaged in another job

You cannot become a real estate professional if you’re in another full time job. As such, most people make use of their spouses who don’t have formal employment to enjoy the benefits. Of course, you cannot afford 50 percent of your time in real estate while still serving another boss.

Tax Benefits of a Real Estate Professional

•Loss deductions

As a real estate professional, you can deduct 100 percent of all losses incurred in real estate against your active income. This means that you get to have a rental property earning your rental income, and still enjoy tax deductions.

For a real estate professional, any income earned through real estate activities is considered an active income for tax purposes only. This implies that a professional can offset their losses using their active income. For instance, if you earn $ 200,000 in a tax year and make losses amounting to $ 50,000, your adjusted gross income is $ 150,000.

Real Estate Professional Status: Qualification & Benefits [Part 1]

Tips for Tax Audits

Most professionals fear the tax audits performed by the IRS. Here are some of the ways you can avoid a tax audit.

1.Don’t include hours spent in investment as part of your involvement in real estate.
2.Don’t add time spent in the management during IRS audit reports.
3.Track your time consistently using reasonable means. This means that you can use a notebook, excel sheet, or an online calendar. However, the method has to be consistent.


A real estate professional is one who spends more than 750 hours actively participating in real estate activities. The professionals get to enjoy lots of perks, especially on tax deductions. For instance, a real estate professional can deduct up to 100 percent of their rental losses against their active income.

Realty in the Mountains Blog

Realty in the Mountains Blog


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