Colorado Real Estate Professional Designation for Taxes

[Adam Smith]

I have searched the forums and have found bits and pieces of answers to my question so I thought I would ask to see if I can get a complete answer.

My question is:  Is it beneficial to be designated as a "real estate professional" for tax purposes when we have one rental.  This year, which is the first full year that we have owned it will have a loss because we had to do some repairs.  Based on the below specifics can we (specifically my realtor wife) be declared as a real estate professional for tax purposes for our rental.

A little more detail on our situation.  We have W2 Income that is close to the IRS limit so we can't write off losses (or very little if any).  My wife is a realtor in Colorado (1099 employee) where she spends greater than 750 hours on real estate...not on our rental but on her real estate deals. 

Does this qualify us for the real estate professional designation so we can write off paper losses from our rental?  This year we had to do $10k in repairs (almost drained the income we made from rents received for the later part of last year) so we will have a loss when combined with depreciation and interest, etc. write offs.  I think on a normal year we will still show a profit if we don't have any repairs.

Last year I thought I remembered our CPA telling us we do not want the designation but I don't know why??

Any information would be greatly appreciated.

[Matthew Kreitzer]

Originally posted by @Brandon Hall:

Originally posted by @Russell Brazil:

@Brandon Hall I dont think it was that case. Im trying to go off faulty memory. I believe the wife was a real estate agent. I believe they had 3 rentals. She claimed being an agent qualified her as a professional. IRS said no. Court said that she did qualify because she was involved in "brokering" which is what the IRS was trying to say she was not involved in since she was an "agent" and not a "broker." Court found that as an agent she was involved in brokering, thus found the case in her favor.

 Gragg v United States?

https://casetext.com/case/gragg-v-united-states-5

Although I am not sure which case Mr. Brazil is referring to, I'd note that is a U.S. District Court Case. I believe Mr. Brazil said he was looking for a Tax Court ruling. 

That said; to OP: I'd be careful here and consult with a licensed practitioner in your state. Your U.S. District Court may have a different tax treatment than the U.S. Tax Court, which could open you up to liability on different fronts.