Certified Real Estate Professional Directory (2024)

FAQs

Who does the IRS consider a real estate professional? ›

To qualify for real estate professional tax status, you must meet both of the following criteria: More than half of the personal services performed by the taxpayer during the tax year must be performed in real property trades or businesses in which the taxpayer materially participates.

The election may be made in any year in which the taxpayer is a qualifying real estate professional, and the failure to make the election in one year does not preclude the taxpayer from making it in a subsequent year.

Real estate professional status (REPS) is an IRS-recognized designation for individuals extensively engaged in real property trades or businesses. Obtaining this status provides significant tax advantages, including the treatment of rental income as active income and unrestricted deductions for rental losses.

Technically, the IRS is looking for you to spend 750 hours on each rental property. However, the IRS does allow you to group properties by making an election to treat all of those interests as a single activity. By doing so, you must only spend 750 hours across your entire rental portfolio.

The 1% rule of real estate investing measures the price of an investment property against the gross income it can generate. For a potential investment to pass the 1% rule, its monthly rent must equal at least 1% of the purchase price.

“A prospective home buyer should never address with a seller or seller's agent anything concerning their financing or ability to pay a full-price offer,” says Maryjo Shockley, a real estate professional with Keller Williams.

Obtaining this status provides substantial tax advantages, such as treating rental income as active income and deducting rental losses without limitation.

What if your real estate activities generate rental income? Qualifying as a real estate professional in the eyes of the IRS is only beneficial if your rental real estate investments generate net losses. If your properties generate rental income, there are no losses to offset other income.

What are the examples of real estate professional? ›

The real estate industry encompasses a wide range of professionals including brokers, team leaders, salespeople, trainers, property managers, appraisers, and more. Most practitioners concentrate in either the residential or commercial side of the business, though some work in both areas.

If you or your spouse actively participated in a passive rental real estate activity, the amount of the passive activity loss that's disallowed is decreased and you therefore can deduct up to $25,000 of loss from the activity from your nonpassive income.

Any of the following activities would qualify as material participation: “real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental operation, management, leasing, or brokerage trade or business.” Let's dive into each of these in order.

But the IRS provides two exceptions: If you're a real estate professional who materially participates in your business, your passive real estate losses can offset ordinary income. If you actively participate in your business, you can deduct up to $25K of those losses against nonpassive income.

This means you were involved in the operations of the activity on a regular, continuous, and substantial basis. If you did not materially participate in your business activity, then the rental real estate is considered a passive activity.

The traditional IRA is one of the most common options for real estate professionals. It allows the account holder to deduct the money contributed to the account on their tax return. The earnings can grow tax-deferred until you withdraw them in retirement.

The IRS considers estate assets to be any interest in real estate, such as a home. Other examples of assets include, but are not limited to: Stocks and bonds.

A real estate investor invests capital in property. You buy and sell properties, manipulate their valuation, collect rents, and lobby politicians and governmental land-use agencies to realize a profit. You may work alone as an individual investor, with a partner, or as part of a network of investors.