Real Estate Professional – Rule 3
Alright, we’ve talked about what you need to do to qualify as a real estate professional for tax purposes. Rule one was the 750 hour rule. Rule two was the material participation rule. The final rule that we’ll be talking about today is what I call the 50% rule and for a lot of people, it’s the one that trips up most people and disqualifies them from being a real estate professional. How the 50% rule works is, you have to spend more then 50% of the time you spend on personal services for the year in real estate and rental real estate trade or business activities.
Where most people run into problems is when they have a full time job. If you spend 2,000 hours at your job, you then have to spend 2,001 hours on real estate to qualify as a real estate professional. That doesn’t leave people too much time to sleep. And these people (those who get a W-2 and then claim to be a real estate professional) are some of the people the IRS is targeting. So look at the 750 hour as the minimum but what you really need to get to is a match of time you put into your other businesses or jobs.
I’ll have one more post on the real estate professional status before I move on to something else. It’ll be mostly some planning ideas.