Real Estate Professional Tax Status question

[Victor Baronich]

I have my rentals set up in a C corp.  I also own another C Corp business which I receive a w-2 from.  I would like to raise my income on the non-real estate business, but want to have the REP tax status first to cut down on fed income tax.  I already qualify for this status, but my accountant says that I cannot use it against my w-2 because the real estate business is in a c-corp and it would need to be in a s-corp.  Is this true?  She says that switching will eliminate our net operating loss which we are carrying forward.

Thanks for any help!

[Ashish Acharya]

Originally posted by @Michael Plaks:

@Victor Baronich

What your CPA is probably saying, and that would be correct, is that hours you spend working for your real estate business inside C-corp do NOT count for qualifying as REPro and probably kill REPro.

What is puzzling to me is that REPro would be useless if your rentals are inside a C-corp anyway, and rentals should not be inside a C-corp to begin with.

Your setup seems to be very detrimental, as @Eamonn McElroy mentioned. Cannot comment on the way out of it or on the net operating loss issue, since I do not have full details about your current situation. Frankly, from your description, it does not sound like you have the full grasp, either.

One thing is clear: a second opinion is highly recommended, and not from an online forum.

I love RE status post. 

Both Michael and Eamonn are to the point as always. 

Michael on your comment "What your CPA is probably saying, and that would be correct, is that hours you spend working for your real estate business inside C-corp do NOT count for qualifying as REPro and probably kill REPro."


For the Section 469(c)(7) relief provision, personal services performed as an employee are not treated as performed in a real property trade or business unless the employee owns more than 5% of the employer for the entire year [IRC Sec. 469(c)(7)(D)(ii); Reg. 1.469-9(c)(5)]. A closely held C corporation qualifies for IRC Sec. 469(c)(7) relief if more than 50% of its gross receipts for the year are from real property trades or businesses in which it materially participates [IRC Sec. 469(c)(7)(D)(i); Reg. 1.469-9(c)(2)].