Filing Taxes as Real Estate Professional

[Monish Lillaney]

Hey All, I work as an engineer full-time, but I also work full time on my rental properties since I do all the work myself. I just bought a three family this year, and haven't been able to rent it since COVID, so i decided to gut renovate all three units which is expending ALL of my free time outside of my 40 hour work week as an engineer. Will i be able to file as a real estate professional this year? I have my real estate license, manage my properties, lease renewals, maintenance issues, landscaping, etc, and have no social life lol -- i feel like since i work more than 40 hours outside of my 40 hour corporate job I should be able to... thoughts?

[Natalie Kolodij]

This is a sitaution the tax court loves to throw out. 

Is it POSSIBLE you qualify- yes. But it will be strongly looked at. 

2 Rules- 

Over 750 hours and more time in REI than any other combined activities.

So if you work 2050 hours a year at your w2 job- And you can prove via detailed, onging time tracking logs...that you spent MORE time than that over the course of the year then you could potentially claim it. 

Keep it mind only time on your owned properties counts (no research on future properties). And you need to qualify from one activitiy. 

So normally- each rental stands alone as an activity, so does having your license/being an agent. 

To look at the time of ALL of your rentals combined you need to make an election- and if you have prior losses tied up in the companies those would become tied up in the overall activity (IE if you sold ONE property from the grouping it's prior losses wouldn't be able to be deducted, where as normally they can be)

Also the IRS is big on the log being regular and on going- meining you can't make it up after the fact. 

So talk with your tax pro- see what the benefits vs risks are for you, if it will trap prior losses, ect.