Qualifying as Real Estate Professional with Construction Company?

Question

I have 15 rentals.  I also own 19% of our family cabinet manufacturing business, and actively manage it.  I work 45-50 hours / week in the business.  Our clients are custom home builders.  So, we are directly working in the construction industry.  My question is, does this qualify me as "Real Estate Professional" status?

IRS Code 469-7-c(7)(C):

"Real property trade or businessReal property trade or business. For purposes of this paragraph , the term"real property trade or business" means any real property development,redevelopment, construction, reconstruction, acquisition, conversion, rental,operation, management, leasing, or brokerage trade or business."

I asked my CPA and he is looking into it, he says he's not sure.  Do any of you own businesses in the construction industry and claim real estate professional status?

Eamonn McElroy · Answer

So, we are directly working in the construction industry.

It would be more accurate to say that you're working indirectly in the real estate construction industry.

Your trade or business is cabinet manufacturing, which is not a real property trade or business under Sec 469.

You seem to be attributing the trade or business of your customers to your company, and that's where you're going off course.

For example, using your line of thinking, a software engineer who creates and sells project management software solely to RE developers would be a real property trade or business under Sec 469.  It's not.  It's a software company.

Michael Plaks · Answer

@Asher Anthes

This is a matter of interpretation of the law, and such interpretations are often litigated. I'm not aware of any court case where your particular situation was tested and resolved.

Absent such legal precedent, my interpretation is that you do not qualify, because you sell your products to the builders. You would've qualified if you were building and installing custom cabinets in those houses.

What do you think, @Brandon Hall?