You know that owning real estate comes with huge tax benefits.
But do you know the secret to unlocking the maximum benefits allowed by the IRS?
It’s surprising to me how many people do not know about this…even full-time real estate agents and investors!
(That might be a hint to switch to a real estate tax specialist CPA).
Without unlocking this benefit you have strict limits to how much passive losses (like depreciation) you can use to offset your income.
You may be paying thousands or tens of thousands of dollars MORE in taxes than you would otherwise pay if you unlocked this cheat code – especially if you own multiple properties or invest in multifamily syndications or funds.
It’s called Real Estate Professional status.
Being designated as a real estate professional with the IRS significantly raises the limits for passive losses to offset income.
You do not need a real estate license to qualify either (full-time Realtors may qualify though).
To qualify as a real estate professional you must pass the IRS’s two-pronged test:
- You work at least 750 hours a year in real estate business activities and
- More than 50% of your working hours are in real estate
As long as you (or your spouse) pass this IRS’s test then you can take maximum advantage of passive losses to offset your income.
This will lower your taxable income and reduce your tax liability.
For compounded returns simply reinvest the tax savings!
That’s what the IRS wants you to do…
If you work full-time in real estate then it’s easy to qualify.
If you work a full time W-2 job it may be challenging due to the >50% working hours test.
However, if your spouse does not have a full time job they may be able to qualify.
Be sure to talk to a real estate tax expert to find out if (or how) you can qualify as a real estate professional.