Real Estate Professional or Not?

[Account Closed]

Hello,

My wife and I finished building our first rental this year and it is in service:)  I am talking with a new cpa about the upcoming tax season and when I brought up the idea of claiming my wife as a real estate professional, he really didn't like the idea.  I am not sure why as my wife was the general contractor, she has a GC license from the city and we well exceed the 750 hour requirement?  Our AGI will be high enough that it will severely limit us taking any losses.

If anyone has any other insights/comments please let me know.

Thanks in advance,

Ed C. 

[Brandon Hall]

@Bill Walston Achieving the "real estate professional" status has nothing to do with whether your properties will be classified as inventory or investment property. This is simply a way to judge participation in your real estate activities, it is not a means to determine what that business actually does (i.e. flip vs. buy-and-hold). 

Additionally, rent from your real estate is specifically excluded from the definition of self-employment tax.

Per the AICPA: "A taxpayer may be able to avoid certain taxes by being classified as a real estate professional. Income arising from "rentals from real estate" is excluded from the definition of self-employment income for the purpose of the self-employment tax. Additionally, the Sec. 1411 tax on net investment income does not apply under a safe-harbor provision for real estate professionals who meet certain criteria."