All Forum Posts by: Stan Pace

I recommend doing thorough research on who use for advising you in Real Estate Professional Status. Many accountants don't clearly understand it, as it is a complicated mess of rules. After  a year in a major audit, pertaining to real estate professional status, the agent that audited me clearly didn't understand it at all and admitted it consistently.

However even though the agent didn't understand it, the supervisor didn't either, it didn't matter because as you move forward in the process, they will simply state everything is a grey area. That is their tactic, in that you can move to the appeals process, however they know it is going to continue costing the tax payer a lot of money and risk. As a business person for 30 years that desire to be honest, pay taxes as required etc..., it was disgusting to experience such tactics, which I found to be extremely unethical.

DevelopThis would include meeting with engineers, architects, planners, equipment operators, construction personnel, drafters, financial professionals, accounting and legal professionals, etc. to discuss and implement development of property.

You could also be involved in actually performing some of the development work yourself, if you have such skills, or it could be time you spend hiring professionals, supervising their work, reviewing plans, and/or inspecting the work. This development could be anything from subdividing property, with no additional amenities added, to actual construction of real property.

Redevelop
This would include meeting with engineers, architects, planners, equipment operators, construction personnel, drafters, financial professionals, accounting and legal professionals, etc. to discuss and implement demolition of structures and/or redevelopment of the property.

Again, you could be involved in actually performing some of the development work yourself, if you have such skills, or it could be time you spend hiring professionals, supervising their work, reviewing plans, and/or inspecting the work.

Construct
As before, any meetings, planning, hiring, firing, supervision, or inspection of any phase of construction is considered performing this activity.

Reconstruct
Just as with "construct," qualified activities under "reconstruct" are any ones which are necessary to this phase of building.

Acquire
Acquiring a property has many phases--meeting with sales people, looking at a whole range of properties, preparing an offering, responding to counter-offers, arranging financing, meeting with insurance agents, inspections, and actually closing a property. You don't need to acquire a property to rack up a lot of hours in this area.

Convert
Conversion of property is similar to redevelopment or reconstruction, but might have the additional time element of meeting with planning officials. All of that time counts toward your qualified real estate time.

Rent
The time spent meeting with your property managers to establish rental criteria, as well as acting as renting agent yourself (including the showing, screening, advertising, etc.), will count as qualified real estate time.

Operate
If you spend time as a property manager, or meet with your property manager, then you will spend significant time as the "operator" of real estate.

Manage
Similar to "operation" of real estate, if you manage your property, its tenants, prospective buyers, etc., then you are involved in qualified real estate activity.

Lease
The time spent meeting with your property managers to establish leasing criteria, as well as acting as renting agent yourself (including the showing, screening, advertising, etc.), will count as qualified real estate time.

Sell
All of the activities involved in selling a property (getting ready for sale, setting up open houses, placing ads, meeting with real estate brokers and prospective buyers) count toward qualified real estate time.

Came across these questions. You probably already have figured out the answers to your questions, however I just spent a year in an audit on Real Estate Professional status and many hours researching all angles of it.

In my real estate portfolio, I have rental vacation properties also. If you have further questions pertaining to this, will be glad to see if I can help. What I did find, is the auditors don't understand it.

Its important to keep in mind, that a person does not have to own real estate to qualify as a real estate professional. (Am in an audit and the IRS agent does not understand that.) Obviously, if you do not own real estate, there is going to be no financial benefit of being a real estate professional, however it is important to understand what is required to qualify.

Then once you qualify, then it allows you to get the deductions from your real estate, if you materially participate.

I have observed that their aim is to pursue the situation as if you are not compliant, in an extremely aggressive position with an aim to make you pay.

Be sure your accountant is extremely knowledgeable in this area. They take every angle and attack as a "gray area" for their purpose of winning.

If you research the "real estate professional status" topic, you will discover that in the past, because of the complexity of it, the courts were even getting it wrong, however now they are correcting past mistakes and it is becoming clearer as to the true intent of the law.

Note: I am highly aware, there are many who try to be dishonest in paying taxes etc., I understand the IRS deals with many of those, however like most things in life, because of that, those trying to do the right thing, get penalized. My point: Be sure you are legitimately getting what the tax laws allow, because the IRS is going to come at you as if you are guilty first.

A final thought. "I have the most success with the IRS when I am calm and pleasant". The rules should be the rules, not there "is a better outcome if you are calm and pleasant."

I see no relevance in this discussion pertaining to your comments pertaining to Tea Party or Republicans in the conversation, any more than if you had insinuated the"problem is the Democrats are spending too much and we need more money."

Neither apply to the fact that taxpayers are being penalized for reasons that are not as they are intended and a system that is stacked against honest hard working citizens, because the financial risk of pursuing the correct outcome is too high.

Its unfortunate for us all, both Republicans or Democrats.

PS. I have very astute professionals hired. It is even more unfortunate for those who can't afford such.

Per my situation, I own the business in which is my w2 income (job). Since owning for over 25 years,  operation procedures are in place for management that requires little of my time as all aspects are handled by management.

My time is spent on the 18 pieces of real estate I own. Nine of which are vacation rentals in which no one but I, handle all aspects for renting, collection of rents, reservations, contact after they arrive, etc..... Three are residential rental condominiums. The other five consist of a country club, five health clubs with office buildings.  No one handles any aspects of "management or operation" of these 18 properties, other than I. Fortunately, I have the capability to spend my time on what I enjoy doing, which is real estate.

During the past year of this audit, I researched all aspects of the Real Estate Profession rules and regulations and past court cases.

The biggest surprise and eye opener for me has been the ones doing the auditing, do not understand it.   

From your comments, it is obvious that you are an astute observer of reading between the lines. In the future, will explain more details and I completely agree with what I feel are the intent of the law, that someone with a full time good income is purchasing real estate, just for the write off etc.

That is not me, I am a real estate professional however proving it requires being an Ivy league experienced lawyer. Ridiculous!

Note: To be qualified as a real estate professional, a person does not even have to own real estate. Few and evidently many audit agents are not even aware of that. (Obviously, if you don't own realestate, there are no write offs.)

(yes. I hit the wrong button.) Have been in an audit pertaining to the Realestate Professional status, for over a year. Has been a eye opening experience pertaining to what an honest tax paying citizen would expect to what is the reality. Its so confusing and tangled, that they use the leverage of "gray area" as the offensive technique. Even their rep doesn't understand it, yet makes such potentially wrong assertions.

Didn't understand it when it all started, however after spending a many months researching the topic, it is complex and the average person that has another job and is legitimately qualified, has the odds stacked against them for many reasons.

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