Rental income taxes: Is it better to be under a active agent?

[Levi McDaniel]

Hello,

My wife and I purchased our first property (Duplex), we have a PM company looking over it for us being that it is about 600 miles away. We are located in Washington state.

I've searched around for a bit maybe I'm asking the wrong questions in search...

When it comes to tax time is it better to claim as a "active RE agent" or not? I'm an active agent however my wife is not.. Any advice or pointers would be GREAT!

Thanks!

[Brian Schmelzlen]

Hi Levi,

I am guessing you mean "real estate professional".  Currently, the major tax advantage to that status is that your real estate losses are not capped as they would be for other investors.

The definition of a real estate professional, for tax purposes, is defined by the Internal Revenue Code.  It does not mean that you have to be an agent or broker, etc.

However, given the tax bill working its way through Congress it is possible that status may become a disadvantage.  While you will still have uncapped losses, under the House version of the tax bill "passive" investors would be taxed at a 25% rate on all business and rental income.  Active businesses (which real estate professionals fall into, at least based on my understanding) would have 30% of their business income taxed at a 25% rate (under the safe harbor) and the remaining 70% will be taxed at the ordinary income rate.