Do I have to pay myself an hourly rate to be a RE Professional?

[Clint LeClair]

Hello Everyone! Like a good number of you fellow investors, my spouse has a W2 and I am building up our portfolio by BRRR'ing. Between finding the properties, buying, fixing up, and renting out- I'm sure I'm easily going to hit the 750 hour cutoff to be a pro according to the IRS. But here's where I need your advice: do I need to pay myself for those hours? That would add a level of complexity on top of filing for the LLC's that I wasn't anticipating (payroll tax, etc.)

So, do I need to pay myself?  Or can I just count the cashflow as income?

Thank You In Advance!

Clint LeClair

[Natalie Kolodij]

You are actually not allowed to pay yourself unless you're structured as a corporation. 

Who are you currently filing payroll for out of your LLC? How is your LLC structured? 1 member, 2 mebers, S corp?

If it's for rentals it really shouldn't be a corp of any type typically. 

There are a LOT of tracking requirements and items that do and don't qualify for real estate professional, and this is something the IRS tends to Look at. 

If you're basing it on rentals you likely will need to elect to combine them into one activity, and that has tax implications with regard to earlier losses. Also if based on rentals time spent reviewing new deals is arguably not a qualified activity. You need to be keeping an ongoing log of time spent on what specific activities. 

I would sit down with your Tax pro and go over everyhting to make sure you're compliant.