"Gary Bode has just completed our tax returns for the first time and I am totally satisfied with his level of service. He has been very attentive, asked all the right questions, and not only fixed some problems from our previous accountant, but also set us up for future success through a thorough and professional analysis of our corporate structure in conjunction with several personal variables.Gary Bode, CPA: sometimes a client can be made into a real estate professional. For a free phone consult call 399-2705.
As a rental property CPA, I see landlords who can’t squeeze any tax advantage from their loss producing properties. Mostly because the client’s adjusted gross income (AGI) precludes them from the $25,000 passive loss, small landlord exception. And/or, they have no passive gains to offset. So the next logical step is to check whether the landlord is, or can be made to be, a real estate professional. Material participation is the main criteria here. This post doesn’t address all the IRS wrinkles involved.
What Tax Advantages attach to the Real Estate Professional Exception?
- You become exempt from the passive activity loss (PAL) rules.
- All losses, from real estate businesses you materially participate in, can be deducted in the current year.
What is Aggregating?
Sometimes a landlord has to calculate the IRS time requirements, for material participation, using all the properties he/she owns to qualify as a real estate professional. Your rental property CPA then files an Aggregate Election Statement with your tax return. The downside? You can’t pick and choose which properties to aggregate; you have to include them all, which has tax implications.
What about Revenue Procedure 2011-34?
Previously, a late election was addressed through a private letter ruling. Expensive! But now, a landlord meeting specific requirements, can make a late election on an amended return. And have it apply retroactively to a prior year. Very cool! The specific requirements are cut and pasted from Revenue Procedure 2011-34 below.
I’m a rental property CPA with a physical office in Wilmington NC. But the virtual office allows me to offer excellent service to long distance and international clients. For a free phone consult, please call (910) 399-2705.
(1) the taxpayer failed to make an election under § 1.469-9(g) solely because the taxpayer failed to timely meet the requirements in §1.469-9(g);
(2) the taxpayer filed consistently with having made an election under § 1.469-9(g) on any return that would have been affected if the taxpayer had timely made the election. The taxpayer must have filed all required federal income tax returns consistent with the requested aggregation for all of the years including and following the year the taxpayer intends the requested aggregation to be effective and no tax returns containing positions inconsistent with the requested aggregation may have been filed by or with respect to the taxpayer during any of the taxable years;
(3) the taxpayer timely filed each return that would have been affected by the election if it had been timely made. The taxpayer will be treated as having timely filed a required tax or information return if the return is filed within 6 months after its due date, excluding extensions;
(4) the taxpayer has reasonable cause for its failure to meet the requirements in § 1.469-9(g).
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