【理财】節稅小幫手 209 - REAL ESTATE PROFESSIONAL | 佳財會計師事務所

You do not need to be a licensed real estate agent or broker in order to qualify as a real estate professional for tax purposes. Being a real estate professional yields a vital tax benefit; using your rental losses to offset your other non-rental income. Without the real estate professional status, the rental losses can only offset rental income, with the exception of being an active participator ( special $25,000 allowance ), the net rental loss will be carried to future years, and thus leaves no tax benefits to the current year.

Here are few key requirements of a real estate professional:

More time dedicated to real estate than other jobs:

If you earn income from sources other than qualified real estate activities, like W2, you most likely will not qualify. In other words, you must be able to prove that the time spent on real estate is more than your regular job.

Passing the 750-hour test:

You need to spend 750 hours in qualified real estate related activities. If you work for a real estate related entity, your time will only count if you own at least 5% of the entity.

In addition to the aforementioned 750 hours, you also need to spend at least a total of 500 hours on rental activities. You can file an election to aggregate all of your rental activities to qualify for the 500-hour requirement.

Becoming a real estate professional is more critical in saving taxes starting in 2013 because of additional net investment income tax 3.8% imposed. However, this doesn’t mean that everyone will benefit from the status especially when rental loss in arrears that can not be used when the property is sold in a later year.