Can W-2 employee qualify for real estate professionals?

[Pauline Zhao]

Hi, if one already has a W-2 job, but at the same time has an LLC for rentals, can that personal still qualify for real estate professional?

Thank you!

[Steven Hamilton II]

Not if you work full time. You have to spend more time in real estate than in any other activity. And that time has to be at least 750 hours. 

You can qualify as a real estate professional even if you work full-time in another business. However,
some businesses are better suited for this than others.
According to the IRS, you qualify as a real estate professional for purposes of the passive loss rules if you
meet both of the following:

• You perform more than half of your personal services (think “work”) for the year in real
  property trades or businesses in which you materially participate.
• You perform more than 750 hours of services during the year in real property trades or
  businesses in which you materially participate.

Both prongs of the test require you to spend a great deal of time working in “real property trades or
businesses.” What does that mean? According to the IRS, it can mean a profession in any of the
following:

• Development
• Redevelopment
• Construction or reconstruction
• Acquisition
• Conversion
• Rental
• Operation
• Management
• Leasing
• Brokerage