Should I claim my wife as a real estate professional?

Question

We have 25 SFR that I self manage. My wife retired a few years ago due to our strong RE cashflow. What are the advantages of claiming her as a real estate professional? We show a loss on the rentals due to depreciation and write offs. My income is over 150k so I’m not sure if claiming her as a RE professional will help us in the future. Any advice?

Jay Hinrichs · Answer

from what i see you have to spend a certain amount of time per year in the bizz and i mean really in the bizz.. this is probably an audit trigger as well.. so if you get audited you need very detailed supporting documentation.

the Advantages of course are for the many write offs that being in the business affords us.

acquiring a RE license and actively work in the industry usually is the easiest and safest way to claim these write offs.

I am not a CPA of course but my wife and I have been in the business for virtually all our entire working life so we know no other way.. If your not paying tax's not sure what additional write offs are going to do for U.. The benefits of course of the license are access to MLS and the ability to buy and sell your own deals and not pay 3rd party commissions.. For Lori and I this is HUGE.

John Morgan · Answer

@Jonathan Bock

She helps me manage our 25 SFR. We’re running around to the properties doing various things plus book keeping.

Ahad Ali · Answer

There are many tax advantages involved in real estate ownership, however, there are additional perks available to those who qualify as real estate professionals. Rental real estate losses are usually considered passive activities and are subject to passive activity loss limitation rules. However, a taxpayer who qualifies as a real estate professional and materially participates in his or her real estate rentals may avoid these passive loss limitations and is able to deduct rental real estate losses against other income sources. Since your income will cross 150K without claiming as real estate professinal, you won't be able to take any of the rental losses. I would suggest you talk to a tax expert to discuss further regarding this topic to see the best outcome for you.

Kelly O'Keefe · Answer

• Hi @John Morganto qualify as real estate professional here are the tests:
• 
• Perform more than 50% of services in real property trades or businesses (“50% test”)
• Perform more than 750 hours of service in real property trades or businesses (“750 hours test”)
• Materially participate in each rental activity (“material participation test”)what I believe @Jonathan Bock is alluding to is the IRS is pretty strict on these tests and your wife will be expected to substantiate her material participation. If she is already meeting these tests it may be a great tax strategy. Since you mentioned the 150K I am assuming you are referring to the phase out of material participation. Real estate professionals do not have the 150k phase out, and as a result you may qualify to take losses up to the amount you have at risk.

• Perform more than 50% of services in real property trades or businesses (“50% test”)
• Perform more than 750 hours of service in real property trades or businesses (“750 hours test”)
• Materially participate in each rental activity (“material participation test”)what I believe @Jonathan Bock is alluding to is the IRS is pretty strict on these tests and your wife will be expected to substantiate her material participation. If she is already meeting these tests it may be a great tax strategy. Since you mentioned the 150K I am assuming you are referring to the phase out of material participation. Real estate professionals do not have the 150k phase out, and as a result you may qualify to take losses up to the amount you have at risk.

Jonathan Bock · Answer

@John Morgan

What does your wife do in the business?

Jonathan Bock, CPA

Basit Siddiqi · Answer

If you are able to generate losses, the losses would offset your W-2 income.

Real Estate professional status will allow the rental income(if positive) not to be subject to Net Investment Income Tax(NIIT) which is 3.8%

Should I claim my wife as a real estate professional?

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