an agent told me that if you are working on properties for 750 hours you are tax exempt. i tried to get info on the web but nothing comes up has anyone ever heard of this
Quote:
an agent told me that if you are working on properties for 750 hours you are tax exempt. i tried to get info on the web but nothing comes up has anyone ever heard of this
busky,
Either you heard wrong or the agent is wrong. As myfrogger alluded, the 750 hours of personal services in an active real estate business is just half of the requirement to qualify as a real estate professional for tax purposes.
A real estate professional is allowed to treat passive losses from rental property as active losses. These losses can then offset other ordinary income without regard to the $25K passive loss limitation rule. However, just working 750 hours per year on properties does not earn anyone tax exempt status.
The IRS defines Rental Property income as passive income, and managing your own rental property is a passive activity regardless of your level of active participation. If you are hoping to log at least 750 hours per year managing your own rental property to qualify as a real estate professional, then you are out of luck.
I fall under this problem of not being able to write off my passvive losses. I was thinking of saying I work the 14.42 hrs per week to get me to 750 for the yr. What does the IRS look at when it comes to logging the 750 hrs.
Do they count looking for houses, collecting rent, reparing toilets etc.?
You said that you are not able to write off your passive losses. If this is because you have ordinary income from another source and your net passive losses exceed the $25K cap, then forget trying to qualify as a real estate professional based on your rental property participation. You have not lost your excess passive losses, however. You just suspend the excess passive loss and carry it forward to the next tax year.
To answer your question anyway, the IRS looks at a lot more than just 750 hours. The IRS looks at the work performed. The work must be material participation in an active real estate activity or related business.
Managing your own rental property or purchasing for your own rental property account is NOT engaging in an active business. Rental property is a passive activity, by default, regardless of your level of active participation.
Secondly, the IRS looks at all your activities. To be a real estate professional, more than 50% of all the time spent in all your activities must be material participation in an active real estate business. If your active real estate business is a spare-time thing, then the IRS will look at your other employment. If you contribute more than 750 hours in your other employment then you do not meet the requirements of a real estate professional even if you do log exactly 750 hours of qualified work in your real estate business.
Lastly, notice that I used the term "material participation". There are qualifications to be met on what is considered material participation too.
Consult a tax professional licensed in your area for specific details.
The 750hours thing I'm guessing is one way to classify yourself as a "real estate professional." This is good and bad. I'll give an example of each:
good--allows you to take an unlimited passive loss against earned income
bad--you can not use the installment sales method of reporting capital gains tax. It is all due on the sale of the property.
Quote:
an agent told me that if you are working on properties for 750 hours you are tax exempt. i tried to get info on the web but nothing comes up has anyone ever heard of this
busky,
Either you heard wrong or the agent is wrong. As myfrogger alluded, the 750 hours of personal services in an active real estate business is just half of the requirement to qualify as a real estate professional for tax purposes.
A real estate professional is allowed to treat passive losses from rental property as active losses. These losses can then offset other ordinary income without regard to the $25K passive loss limitation rule. However, just working 750 hours per year on properties does not earn anyone tax exempt status.
The IRS defines Rental Property income as passive income, and managing your own rental property is a passive activity regardless of your level of active participation. If you are hoping to log at least 750 hours per year managing your own rental property to qualify as a real estate professional, then you are out of luck.
I fall under this problem of not being able to write off my passvive losses. I was thinking of saying I work the 14.42 hrs per week to get me to 750 for the yr. What does the IRS look at when it comes to logging the 750 hrs.
Do they count looking for houses, collecting rent, reparing toilets etc.?
richmonte,
You said that you are not able to write off your passive losses. If this is because you have ordinary income from another source and your net passive losses exceed the $25K cap, then forget trying to qualify as a real estate professional based on your rental property participation. You have not lost your excess passive losses, however. You just suspend the excess passive loss and carry it forward to the next tax year.
To answer your question anyway, the IRS looks at a lot more than just 750 hours. The IRS looks at the work performed. The work must be material participation in an active real estate activity or related business.
Managing your own rental property or purchasing for your own rental property account is NOT engaging in an active business. Rental property is a passive activity, by default, regardless of your level of active participation.
Secondly, the IRS looks at all your activities. To be a real estate professional, more than 50% of all the time spent in all your activities must be material participation in an active real estate business. If your active real estate business is a spare-time thing, then the IRS will look at your other employment. If you contribute more than 750 hours in your other employment then you do not meet the requirements of a real estate professional even if you do log exactly 750 hours of qualified work in your real estate business.
Lastly, notice that I used the term "material participation". There are qualifications to be met on what is considered material participation too.
Consult a tax professional licensed in your area for specific details.
Thanks for your post Dave. Looks like the IRS really figured this stuff out..