Realty Blog

Realty in the Mountains Blog
 Steve R Patterson
 41  7669  12/10/2021

Realty Blog

All Posts Term: Real Estate Professional
2 post(s) found

What Qualifies As Real Estate Professional Activities When Filing Taxes

What Qualifies As Real Estate Professional Activities When Filing Taxes

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.

Tax Benefits of Being a Real Estate Professional

Tax Benefits of Being a Real Estate Professional

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.

Realty in the Mountains Blog

Realty in the Mountains Blog

Calendar

Tag Cloud