![]() To obtain “Real Estate Professional status,” year by year separately, either you or your spouse separately, ![]() This federal tax law is complex, and I will next attempt to explain the law in easy to understand words, not in tax law jargon, as much as possible. interest, dividends, wages, business income). If you have real estate rental loss, if you can prove “real estate professional” status, and if you can additionally prove that you satisfied one of seven work standards called “material participation of regularly, continuously, and substantially,” relative to your work in your real estate rental business, then all of your real estate rental loss is nonpassive, the loss is active and deductible against your other income (i.e. However, as in many areas of federal tax law, there are exceptions. The Exception – “Real Estate Professional”. Real estate rental losses that are passive may NOT be deducted against other non-realty rental passive income like interest and dividend income. Pursuant to this general rule, if real estate rental loss exist, such are passive losses which are suspended until such future time there is passive real estate rental income, or when you dispose of all your real estate rental properties. First, you must prove you have adequate “adjusted basis” to deduct your real estate rental losses, the consequence of which is that rental loss may only be deducted against passive rental income, no matter how many hours were worked in the rental business. In the following order, here is what you must prove, with evidence, to deduct all of your real estate rental loss over $25,000. ![]() To deduct real estate rental loss, you must also prove you and your spouse’s combined hours worked in your real estate rentals, satisfy one of seven separate and additional work standard rules called “Material Participation”. Obtaining real estate professional status does not mean you can deduct your realty rental loss, only that the general obstacle of so deducting is removed. However, for real estate rental losses, if you or your spouse separately qualify as a “Real Estate Professional,” you remove the obstacle that generally real estate rental losses are not deductible. Generally, rental losses are not deductible, period. Summary Discussion Of What You Must Prove To Deduct Real Estate Losses In Excess Of $25,000. Federal courts’ litigated case decisions through the years have added complex evidence requirements. In 1993, Congress carved out a narrow exception to the Passive Activity Loss Rules for “Real Estate Professionals” whom have real estate rental losses. In 1986, Congress ended the practice of writing off these losses, called “Passive Activity Loss Rules”. (877) 895-2950.įor decades, and continuing today, tax advisers persuaded investors to purchase and operate real estate rental properties, take huge depreciation deductions, write off real estate rental loss against other income like wages, investment income, and business income, all while having positive cash flow of rental income in excess of rental property costs. I advise you call me for a free consultation. As a tax lawyer and certified public accountant with decades of experience, I understand these complexities, I understand audit and United States Tax Court procedure, and I will well defend you against an IRS audit of any kind including a real estate professional audit. If you have real estate rental loss over $25,000, if you want to deduct all of it against your other income, or if you are in or about to begin and IRS audit, then this discussion will greatly assist you. ![]() This discussion addresses IRS real estate professional audits when more than $25,000 of real estate loss is deducted against other income, a difficult type of IRS audit and one for which most taxpayers lose based on inadequate evidence. The Difficult Task Of Defending Against An IRS Real Estate Professional Audit.
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