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Tax Spotlight Who qualifies as a real estate professional?

by Jeffrey N. Bilsky, CPA and Avi D. Goodman, CFA, CPA | May 28, 2015   ()

A recently published Chief Counsel Advice (CCA 201504010) provides important guidance addressing whether activities of a real estate broker or mortgage broker are considered activities in a "real property trade or business" for purposes of determining whether the person is a real estate professional under Sec. 469(c)(7). Based on guidance in this CCA, affected taxpayers may need to reevaluate whether they will meet the definition of real estate professional. The results of this analysis may have a significant impact on a taxpayer's treatment of the income from rental real estate activities under Secs. 469 and 1411.

Rental Real Estate Under Sec. 469

Under the general rules of Sec. 469(a), a taxpayer may not use losses from a passive activity to offset other nonpassive income. Sec. 469(c)(1) provides that a passive activity is any trade or business activity in which the taxpayer does not materially participate. Sec. 469(c)(2) provides further, however, that any rental activity (including rental real estate activities) will be considered passive regardless of a taxpayer's participation. In other words, a taxpayer's rental real estate activities are per se passive.

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Source: The Tax Adviser
Source: The Tax Adviser

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