How to Qualify as a Real Estate Professional and Receive the Tax Benefits Hechtman Group Real Estate CPA Chicago Skokie IL

Becoming a real estate professional creates many loopholes within the tax codes that are applicable to properties and the income generated from them. While there are not many requirements to becoming a real estate professional, the ones that are in place are quite sizable feats. Here, we determine whether becoming a real estate professional is the right choice for you and how you would receive the tax benefits.


How to qualify as a real estate professional

To be seen as a real estate professional in the eyes of the Internal Revenue Service (IRS), there are two main stipulations that must be met. The first refers to the time commitment put forward on the part of the taxpayer. They must devote at least 750 hours of their tax year to real estate related services and activities whether it be through a business they are involved in or through property trades.

The second and main condition requires more than half of the taxpayer’s personal services conducted over the tax year be performed in real property trades or businesses in which the taxpayer is involved in. The IRS defines being involved in a company as a substantial, regular and continuous commitment to the operations of a real estate entity. For instance, a limited partner would not be viewed as a high enough level of involvement with the business. Click here to read more about the nuances of acceptable levels of involvement within a real estate company along with more in-depth explanations of these requirements.


Benefits of electing to become a real estate professional

There are significant tax breaks and benefits available to the taxpayer once they elect to become a real estate professional. First, a real estate professional holds the capability to deduct the disposition of a property as an ordinary loss as opposed to a capital loss. Next, real estate professionals can more easily justify their rental activity s well as the sale of their rental properties as nonpassive activities, lowering the net income taxes they would have to pay. Additionally, real estate professionals can elect to aggregate their involvement in each of their rental properties to avoid this income being subject to income taxes. If avoiding a 3.8% net investment income tax on your real estate income interests you, talk to us about real estate professional election today.

Electing to become a real estate professional possesses a great deal of tax benefits to a real estate investor if they can prove their material involvement to the IRS. Here at the Hechtman Group, we have extensive experience with the intricacies of qualifying for tax breaks like the one described above. Contact us today to see if you can qualify as a real estate professional and the next steps in doing so. Upon first contact, we begin our process of supporting you and your real estate accounting needs every step of the way.


At The Hechtman Group Ltd, we understand that tax laws and regulatory and IRS requirements for real estate are vastly different from other financial services. Rich in industry experience, our CPAs and accountants can guide you through all the necessary steps while also creating best practice opportunities for long-term growth.

Our services include expertise in financial reporting, disposition planning, acquisition analysis, energy credits and deductions, tax planning and more.

Our real estate client base includes architects, developers and builders, brokerage and construction firms, property owners, managers, and investors for commercial and residential properties.

Leave a Reply