What's a Professional?

Occasionally, the IRS uses phrases that have meanings that can be confused with popular usage. This is one of them.

A Real Estate Professional would be a Broker or a Realtor®, correct? Well, no.

It turns out that you don't need to be a Realtor® or anything like it. All you need to do is spend more time in real estate related activities than any other job, and at least 750 hours / year. So the real question is "What are real estate related activities?"

According to the IRS, a qualified real estate activity is any activity in which you “develop, redevelop, construct, reconstruct, acquire, convert, rent, operate, manage, lease or sell” real estate.

Details of these kinds of activities are illustrated in many places including Smokey's place.

This status has some incredible tax advantages, the most important of which is the ability to take unlimited paper losses on your real estate investments.

People who not meet the definition of a Real Estate Professional (according to the IRS rule) are limited to claiming a maximum of $25,000 losses per year and only if they make less than $100,000 per year. If you qualify, then you may be in a position to dramatically lower the amount of your taxes.

Some people can legally reduce their taxes all the way to ZERO!