REAL ESTATE PROFESSIONAL-TAX BENEFITS

[DAVID LABORDE]

Could someone please put in layman's terms the tax advantages that a Real Estate Professional enjoys in real estate investing? Thanks.

[James Park]

One thing I noticed as a great benefit when I became a real estate professional, is that my passive losses from my schedule E became active losses which seemed to off set my earned income 1 to 1 ratio. If you were operating a software company as an S Corporation, you would not be able to do that since the owner would not be classifed as a real estate professional and earned income would not be able to offset passive income 1 to 1.   

If a real estate agent list his clients' homes for a commission and also flips 3 houses a year, both Income from flipping and commissions from transactions would be considered ordinary income subject to income tax which would offset rental properties passive losses 1 to 1. As a real estate professional, I can exceed the $25k maximum cap on rental losses whether I make $20k/year or $250k/year. For an engineer, doctor, any other profession, the rental loss cap will completely phase out at an AGI of $150k and will be carried over to the next year. 

Disclosure: I am not a CPA, but my wife is.