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 Steve R Patterson
 41  7669  12/10/2021

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What Qualifies As Real Estate Professional Activities When Filing Taxes

What Qualifies As Real Estate Professional Activities When Filing Taxes

Dec 10 2021

When filing taxes, some activities are considered to be professional, whereas others are not. The IRS provides the following list of what qualifies as a profession and what does not:

*If you pay someone else to prepare your tax return or review your return for you, then that is considered a service and not a profession.

*If you work in real property management or appraising, this is considered a profession.

WHAT REAL ESTATE PROFESSIONAL STATUS Means for You

In the United States, there are two types of real estate professionals: individual and business. If you are a real estate professional, your profession is considered a business. A real estate professional has specific tax responsibilities that must be adhered to by the taxpayer, including filing a Schedule C or Schedule E.

Real estate professionals have a status that means the IRS considers them experts in the field. They can engage in a broader range of activities than other service professionals.

According to the IRS, real estate professionals include:

-Brokers or salespeople who hold themselves out to the public as experts who are primarily engaged in selling real estate or lending money on real estate;

-Real estate appraisers, except those whose services are primarily related to appraising real property;

-Real estate agents who hold themselves out to the public as experts who are primarily engaged in selling real estate; and

-Real estate developers or contractors who hold themselves out to the public as experts primarily engaged in building, renovating, or repairing the property.

-Real estate agents who hold themselves out to the public as experts primarily engaged in selling real estate.

-Real estate agents who hold themselves out to the public as experts primarily engaged in selling real estate.

WHAT QUALIFIES AS REAL ESTATE PROFESSIONAL STATUS

If you are a self-employed taxpayer, you need to file Schedule C or Schedule E. The only way to determine if you qualify as a real estate professional is by answering yes or no to the following questions:

*Do you act as an agent for someone else in connection with the sale of real property?

*Do you act as an agent for someone else in connection with the rental of real property?

*Do you spend more than half of your time working in real estate activities?

*Do you have a business structure of sole proprietor, partnership, or corporation?

You are considered a real estate professional if you answer yes to any of these questions.

WHAT DOES NOT QUALIFY AS REAL ESTATE PROFESSIONAL STATUS

Some activities that don't qualify for real estate professional status are:

*If you are a certified public accountant or enrolled agent, this is not considered a profession.

*If you conduct real estate business as part of your job, then this is not considered a profession.

*Substitute buying or selling through another person or firm.

*Acting as a subagent by dividing commissions with the agent.

*Paying a commission to the listing agent.

*Representing the buyer or tenant in a transaction.

WHAT ARE THE TAX BENEFITS OF REAL ESTATE PROFESSIONAL STATUS

A few tax benefits come with being a real estate professional. The first benefit is that you can deduct business expenses from your income. This includes any expenses related to the real estate's activity, such as advertising, office supplies, and travel.

Another benefit of being a real estate professional is that you can use the loss from the business to offset other income. For example, if you have a job and your real estate business generates a loss, you can use that loss to reduce the amount of taxes you owe on your job income.

The third benefit is that you can take the home office deduction. If you use part of your home for business purposes, you can deduct a portion of your home expenses. The last benefit is the ability to contribute more money to a retirement plan, such as a Solo 401k or a SEP IRA. To qualify for this deduction, you must be self-employed and contribute no more than 25% of your net income or $51,000, whichever is less.

CONCLUSION

Being a real estate professional has its benefits, including tax deductions and the ability to contribute more money to a retirement plan. To find out more about what qualifies as a real estate professional and the tax responsibilities that come with it, speak to your accountant or visit the IRS website.

How to Become a Real Estate Professional (What it Takes to Qualify)

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