Setting up a management company to qualify for Real Estate Professional designation

[Kelly Monson]

Hello all,

I personally have 6 single family rentals and one tri-plex.  I now manage all properties myself with the exception of one.  A year ago, my credit was tight, so I bought 3 properties with my brother.  We own them 50/50, but the loan, title and everything are in my brothers name.  We have an agreement that I receive 50% of the cash flow and get 50% of the equity upon sale.  He put up 3/4 of the down payment/rehab/etc. and I located/oversaw the rehab/and now manage these properties.  I do not get paid anything monthly for the management - that is where my 1/4 down payment benefit kicked in.  I would like to get qualified for a real estate professional tax designation so we could offset some of my husband's income.  I only work part-time, so I can meet the 750 hour requirement and 500 hour active participation requirements.  My accountant said that I cannot count the management of my brother's properties as hours. 

What if I set up a property management entity where the rent from our personal properties and my brother's properties were paid into?  Once the money was received, the entity would retain a 10% fee and disburse the funds to the appropriate bank accounts that the rental properties are held in?  Would I be able to count the management of my brother's properties then?

I am not doing this for asset protection or any other reason - just as a way to demonstrate that I manage properties in addition to our own and to count those hours of activity.  Any thoughts???