Classify as active or passive for optimal tax benefits?

[Mark Silberman]

My spouse and I own rental properties. Our longstanding property investments had passive loss carryovers from the earlier years that are now going down each year due to passive profits. (The rental market is very strong and rents have gone way up over the years.)

We bought more rental property in more recent years. These more recent purchases are generating profits, but the depreciation write offs translate into a net loss for tax purposes. My spouse works very part time as a teacher, and she spends lots of hours on real estate, researching properties, purchasing, and she is in the process of reactivating her real estate license.

Here is what I am considering. (I haven't yet talked to my accountant about this.) I am looking into classifying our rental property activities in the most tax advantaged fashion possible. If I manage the properties that we have held for a long time that are generating taxable gains, this could allow us to use up the remaining passive losses. If my spouse is active in real estate to the level required by the IRS to make her real estate activities qualify as "active" under the tax code, she could manage our newer properties and allow us to take the tax deductions for active losses after the real estate depreciation deductions.

Does anyone have experience with this type of situation? Any thoughts whether this scenario would be allowed as reasonable and proper from a tax perspective? Any other ideas about structuring this in the best possible fashion from a tax perspective?