Do you qualify as RE PRO?

[Melanie Baldridge]

To qualify as an RE Pro you must:

1. Spend more than half of your total working hours in an RE business in which you materially participate.

2. You must work at least 750 hours per year in a qualified RE business.

So most people who have high-earning W-2 jobs outside of real estate won't qualify.

But the unique thing about RE pro status is that even if you don’t qualify but your spouse does, you can both file jointly and claim the losses from your RE investments to offset your other active income together.

It's an incredibly powerful benefit if you do meet the criteria.

[Marc Lock]

How is material participation defined?

Once a taxpayer meets the REP status, do they need to materially participate in each property?

[Johan Garcia]

Quote from @Marc Lock:

How is material participation defined?

Once a taxpayer meets the REP status, do they need to materially participate in each property?

The IRS uses material participation tests to determine if you are actively involved in an activity. There are 7 material participation tests and you only need to meet one. I'm not going to list them all but let me know and I can provide them. 

You can make an election under IRC Section 469(c)(7)(A) to treat all your rental real estate interests as a single activity -- an election to aggregate them all. So your material participation is assessed across all your rental properties collectively not one-by-one.

[Melanie Baldridge]

Quote from @Marc Lock:

How is material participation defined?

Once a taxpayer meets the REP status, do they need to materially participate in each property?

No. You don’t have to materially participate in each property.

If you own multiple properties, you can elect to group them together as a single activity for tax purposes, known as a "grouping election.”

This allows you to meet the material participation requirements based on your combined activities across all the grouped properties.

But yes, RE Pros still have to spend over 750 hours in real estate activities during the year (and more time doing this than anything else) to be considered material.