All Forum Posts by: Harjot Khangura

If he files jointly with his wife and his wife does the 750 hours/year required for the Real Estate Professional tax status that would be legal and the unlimited depreciation defensible, right?

Yes, I'd have to review the specific requirements but I believe if his wife didn't have another primary profession and spends 750 hours as a real estate professional then she should qualify as a real estate professional. This would allow them to take real estate losses against their earned income. Not sure what unlimited depreciation is but depreciate would be factored into their real estate losses.

0 Votes

It does apply to you. If you're on the cash basis you probably will get hit with a negligence, gross negligence penalty, or potentially fraud. At a minimum, you should probably look into switching to accrual in which you have a marginally better chance of defending your position. Depending on all the facts and conclusion of a professional, a research opinion by a professonial might be enough to at least show you did some research and avoid the gross negligence or fraud penalty.

Originally posted by @Davido Davido:

@Harjot Khangura, your comment on page 3 was also helpful

"From a tax perspective, this appears to be a question about "economic performance." Economic performance is a formal tax term and complex area of the tax code."

I do not believe the economic performance test applies to me unless I use the accrual method of accounting. I don't, I use a cash basis method. Let me know if I missed something. Still, your reply led me into valuable research on accounting rules and concepts like "real party in interest". Thank you Harjot. Best wishes.

0 Votes

From a tax perspective, this appears to be a question about "economic performance." Economic performance is a formal tax term and complex area of the tax code. I've seen other situations in Fortune 500 companies where control of funds/assets was in question and it always comes down to whether or not economic performance as occurred. I would definitely get advice from a CPA and Attorney but you can also start by doing your own research on economic performance.

I haven't had a chance to read every response but I don't think this has been mentioned. Also, please note that this only from a tax/IRS perspective and doesn't consider you state laws on ownership of land/assets.

Harjot Khangura, CPA, MBT

Partner - HK Associates, Certified Public Accountants

2 Votes

As a CPA, I agree with Eamonn. Anyone can declare real estate losses against their active income if their income is under the AGI threshold but only someone whose PRIMARY profession is designated to be a real estate professional will be able to offset active income. Unless the doctor's either semi or fully retired from the profession, there's no way he or she would be considered a real estate professional. There's no grey area here and under an audit, this would easily be reversed.

Originally posted by @Eamonn McElroy:

@Michael Blank

"I know a doctor who's been working with them; he's a passive investor with HUGE active income; Wealthabilty helped him figure out how to leverage the real estate depreciation to reduce his taxes."

Unless that doctor has a modified AGI of less than $150k (which is unlikely for a doctor, trust me) or has a spouse that's a real estate professional, there's no way he can use regular real estate losses to reduce his taxes...

If his return is selected for examination he'll be hit with back taxes, interest, and penalties.

2 Votes

All Forum Posts by: Harjot Khangura

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Post: Wealth Ability- formerly ProVision - Tom Wheelwright

Post: Unusual Tax Question Is this money for nothing? Is it Tax Free?

Post: Unusual Tax Question Is this money for nothing? Is it Tax Free?

Post: Wealth Ability- formerly ProVision - Tom Wheelwright