Rescinding real estate professional status, why I'd like to...

[Curt Smith]

I've read in other tax forums assertion of IRS auditing real estate pro's...  Just another issue.  My guess is that risk comes from actually negating ordinary income with real estate losses in execess of >$25k.   So the IRS can bump taxes collected by challenging REP status, which that other thread mentions is pretty easy for an auditor and a lot of work for an investor to have over whelming documentation that doesn't look "fabricated" on the spot after the fact.

The point of this thread: Last month a CPA gave a talk to our REIA and mentioned that claiming REP also increases your IRS scrutiny of whether you 1099 your contractors faithfully. IIE being a real estate pro, REP, means you are held to a higher standard of running a company. Was the inference. No case law given.

FWIW my view is that REP is not worth it for my landlording business even though my wife is retired during our self managing 34 rentals with 5 new rehabs per year. I don’t see the value in my return of greater taking of RE losses against ordinary income, least for me. Our 34 properties run at good profit, IE no losses. So why take on the possible higher audit risks of REP when It doesn’t benefit me at all.

From my scenario studies, it seems REP may benefit some with a small amount of ordinary income AND RE losses. When I had a high paying day job even then still no benefit because of the phase out of deducting losses as your income is over $100k or some staired tiers PLUS we ran at a profit so no losses to deduct regardless.

I’m googling for how to rescind past claims of REP… :)

Another thread may focus on the common problem of running a small time rehab / landlording business of not 1099'ing every one I pay >$600/yr.   I'm not wanting to pour gas on this thread by admitting our 1099'ing practice re: that all of our rentals are miles and miles apart, long distance, where small time handymen are used on each house and rarely are the same guys used on more than one house.  Meaning we use a lot of handymen but do pay >$600/yr each but lots of them.  When I used to mention filling out a W-9 I'd get "click".  It became a do i get this issue fixed or not business practice...

In general we take a VERY conservative line re our tax return.  All of our houses run at high profit, low / no risky deductions, even after loading shared business expenses like education, office costs etc etc onto each Sched E.  I'm a retired programmer and know the IRS has programmed algorithm triggering of high risk returns based on the numbers and tactics found from a computer scanning basis.  I agree i'm just playing "the odds" re questing to rescind real estate pro re audit risk.  I loose nothing tax wise given I have no losses!  It just seems like a needless bullseye in general.