Real life example of the real estate professional status

[Ashish Acharya]

Recently, in the case Birdsong, doctor's wife demonstrated that she actively and extensively managed their rental properties and was therefore a “real estate professional”.

RE professional is not limited by the passive loss limitation on the property he/she materially participate.

It shows that with proper and diligent planning, you can use the unlimited rental loss to offset spouse high paying job. We know that most of the investors are in the same situation as described below. Make sure to take notes on how to document your hours and types of activities.

“The husband worked full-time as an emergency physician, while his wife divides her time between caring for their children and managing their rental properties. In 2014, wife was the sole party actively involved in the day-to-day management of their rental properties. The activities of wife with respect to the rental properties included, among other things, cleaning common areas, collecting coins from washing machines, performing repairs at the properties, communicating with tenants, collecting and depositing rent, maintaining insurance policies, purchasing materials for the properties, as needed, paying bills and keeping books and records for tax accounting purposes. Occasionally, wife hired a contractor to perform tasks she could not complete herself. When wife hired a contractor, she spent considerable time researching and contacting contractors, obtaining price quotes and supervising repairs. Wife's property management duties also included inspecting units, preparing units for rental, advertising vacant units, screening potential tenants, showing the units and processing rental applications.

Wife produced two spreadsheets detailing her rental management activities. The first spreadsheet reflected that wife logged 844.75 hours managing the rental properties in 2014, and the second spreadsheet showed a total of 1,136.25 hours. The second spreadsheet included previously omitted tasks such as investor hours and driving time between the rental properties and the hardware store and other locations pertinent to the management of the units. The case specifically stated that the taxpayers used wife's calendar and receipts to reconstruct the time and entries on both spreadsheets for the first half of 2014, and that for the second half of 2014, the time entries came from a contemporaneous log wife maintained on her phone on which she entered the date, location, time and description of each task she performed. Wife also supplied receipts and invoices substantiating the hours she logged” - Source Checkpoint.