- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Coaching Changes
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
Tax Question RE: Passive Losses from RE
Posted on 3/18/09 at 12:37 pm
Posted on 3/18/09 at 12:37 pm
Guy is a teacher, but has accumulated 20-30 houses that he has renovated for renting. He has massive PALs, but the houses are deeply underwater, so its unlikely he will be able to utilize those PALs. Does anyone know of a case/ruling that might reference when/if someone can be considered a "real estate professional" as opposed to a passive investor (to utilize the PALs) if they have acquired such a large amount of rental property, or something along those lines? Any help is greatly appreciated.
2
Posted on 3/18/09 at 2:05 pm to kfizzle85
That is going to be a tough one if he has a W-2 for 9/12 months of the year in a full time position. Look at all the definitions.
Posted on 3/18/09 at 2:18 pm to kfizzle85
Does Guy manage the rental properties? If so, then he can claim active participation for each rental property. This will allow him to deduct some losses from the rentals currently. See the instructions for Form 8582 regarding active participation rental real estate.
With so large an investment portfolio he really should be having an accountant prepare his tax returns. There is no telling how much he may have overpaid in taxes in prior years if he was unaware of the difference between active participation rental real estate activities and those without active participation.
Were any of Guy's rental properties damaged by Gustav? If so, he has more opportunities to deduct losses from the properties.
With so large an investment portfolio he really should be having an accountant prepare his tax returns. There is no telling how much he may have overpaid in taxes in prior years if he was unaware of the difference between active participation rental real estate activities and those without active participation.
Were any of Guy's rental properties damaged by Gustav? If so, he has more opportunities to deduct losses from the properties.
Posted on 3/18/09 at 2:35 pm to Poodlebrain
quote:
Does Guy manage the rental properties? If so, then he can claim active participation for each rental property. This will allow him to deduct some losses from the rentals currently. See the instructions for Form 8582 regarding active participation rental real estate.
He bought a bunch of property in nola and rennovated them, but apparently has no renters so he's just got big cap losses. I know the two reqs (750hrs + 1/2 time), but I was trying to find a definition of what "developer, reconstruction, etc as put forth in 469(c)(7)(C).
quote:
With so large an investment portfolio he really should be having an accountant prepare his tax returns.
He does, I'm doing research for my boss.
quote:
Were any of Guy's rental properties damaged by Gustav? If so, he has more opportunities to deduct losses from the properties.
Don't know but I kind of doubt it, its almost all in nola.
Posted on 3/18/09 at 3:00 pm to kfizzle85
It appears that RE prof = 2 rules; I can't find anything explicitly qualifying what a "developer, etc" is. So the next question is, if it gets construed as ordinary income, are gains subject to self-employment tax?
Posted on 3/18/09 at 3:50 pm to kfizzle85
You don't need to have renters for a property to be a rental property. All you need do is make the property available for rent for it to be considered placed in service as a rental property. Check out the guidance for depreciating rental properties in IRS Publication 527.
Your boss may have a problem deducting losses from active participation rental teal estate activities if his modified adjusted gross income exceeds certain limits.
Your boss may have a problem deducting losses from active participation rental teal estate activities if his modified adjusted gross income exceeds certain limits.
Posted on 3/18/09 at 3:52 pm to Poodlebrain
Well the guy qualified as a RE professional (which was really all I was trying to get at), so there shouldn't be any kind of agi cap anymore right?
Posted on 3/18/09 at 4:07 pm to kfizzle85
Here's what I got from another accountant
"I just finished an audit with an agent who was quite aggressive in her decisions. My client had a full time job(35 hrs/week) and owned 15 properties. He CLAIMED he worked over 40 hours a week managing, repairing, collecting rents, etc. We had a daily accounting of all the hours spent working on the rentals, buying supplies, etc. This included 3 hours to go to Lowes to get supplies(he lived out in the boonies). Many hours, (even on Xmas day!) working, working on these losers of rental properties. She threw out many hours, getting him under 50%. I even heard that he had been out disabled so he did not work at his full time job, but she denied REP anyway. Take this as a cautionary tale. "
"I just finished an audit with an agent who was quite aggressive in her decisions. My client had a full time job(35 hrs/week) and owned 15 properties. He CLAIMED he worked over 40 hours a week managing, repairing, collecting rents, etc. We had a daily accounting of all the hours spent working on the rentals, buying supplies, etc. This included 3 hours to go to Lowes to get supplies(he lived out in the boonies). Many hours, (even on Xmas day!) working, working on these losers of rental properties. She threw out many hours, getting him under 50%. I even heard that he had been out disabled so he did not work at his full time job, but she denied REP anyway. Take this as a cautionary tale. "
Posted on 3/18/09 at 4:29 pm to Ray Finkle
I found one case where they threw out a ton of hours as personal in nature. I don't know the details of the hours or how they have been logged, but I expressed concern over that potential as well, especially considering how large the losses are for this guy. Thanks for the advice guys. 
Posted on 3/18/09 at 4:38 pm to kfizzle85
quote:
He bought a bunch of property in nola and rennovated them, but apparently has no renters
I did that and am in danger of losing everything... my house, my "dream" investment property, etc.
Of course, I'm playing by the book and not trying to classify myself as something other than I am not.
I thought this whole forum was about "if he made shite decisions, he should feel the PAIN of them."
At least that's what we're telling the AIGs, Citi's and BoA's.
Posted on 3/18/09 at 4:41 pm to Meauxjeaux
Its about whether or not he qualifies as a real estate professional. I'm not really sure what you mean by feel the pain, the losses are there.
Posted on 3/18/09 at 5:12 pm to kfizzle85
quote:
So the next question is, if it gets construed as ordinary income, are gains subject to self-employment tax?
Just what type of real estate professional does your boss qualify as? If his profession is buyng, renovating and selling properties, then each property is inventory for his business. As such the expenses for each property have to be capitalized, and they are not deductible until the property is sold. The gains and losses from the sales of the properties will be taxed as ordinary income, and any gains will be subject to self-employment tax.
Your boss may want to consider starting a property management company to be able to deduct some of the losses from his activities. This message board is not the place to discuss the why's and how's. If you, or he, are interested I can be reached at jaygee-25871@mypacks.net.
Posted on 3/18/09 at 6:25 pm to Poodlebrain
quote:
Just what type of real estate professional does your boss qualify as?
You misunderstood me poodlebrain. My boss is the cpa, I am but a mere student/grunt trying to flesh out some details. I can see that my grammar skills have taken a hit over the years. He (boss) was asking me to find out for sure that the client did indeed qualify as a RE professional so that he could treat the losses as ordinary income. At any rate, I do appreciate your help. I believe he knew the answer, and was kind of testing my ability to do some research.Posted on 3/19/09 at 1:11 am to kfizzle85
quote:
the losses are there.
But if they are passive losses vs. active losses, he can't claim a dollar for dollar deduction and carry that forward (or backward) correct?
So by attempting to miss-classify himself, he would be gaming the system in order to get cash back from Uncle Sam.
I may be talking out of my azz and, quite frankly, I'm being an azz.
Although if what I think he's doing is really what he's trying to do, at some level, it is fraudulent.
ofw
Posted on 3/19/09 at 9:54 am to Meauxjeaux
I would say that he is attempting to re-classify himself, because he teaches for a total of six hours a week, and spends the rest of the time managing his 20-30 rental properties. If you reversed the situation, I would agree with you completely (leaving out the larger point of the ridiculous tax rules around real estate in general).
Posted on 3/19/09 at 11:50 am to kfizzle85
quote:
...(leaving out the larger point of the ridiculous tax rules around real estate in general).
The purpose of the passive activity rules that you think are ridiculous is to make real estate investing comparable to non-real estate investing. Prior to enactment of the passive activity rules the tax advantages of real estate investing were significant enough to induce people to invest in real estate projects that would lose money rather than other investments that would make money.
Posted on 3/19/09 at 1:25 pm to Poodlebrain
Look, I'm not saying they don't serve a purpose, just that there are a lot of rules specific to RE. I understand you've been at it for quite some time, so it probably flows seamlessly for you, but I'm just beginning my career, so I don't exactly have it memorized yet.
Posted on 3/19/09 at 10:00 pm to Ray Finkle
quote:
"I just finished an audit with an agent who was quite aggressive in her decisions. My client had a full time job(35 hrs/week) and owned 15 properties. He CLAIMED he worked over 40 hours a week managing, repairing, collecting rents, etc. We had a daily accounting of all the hours spent working on the rentals, buying supplies, etc. This included 3 hours to go to Lowes to get supplies(he lived out in the boonies). Many hours, (even on Xmas day!) working, working on these losers of rental properties. She threw out many hours, getting him under 50%. I even heard that he had been out disabled so he did not work at his full time job, but she denied REP anyway. Take this as a cautionary tale. "
wow. scary. i'm f'ed.
Page 1 of 1
Popular
Back to top
Follow TigerDroppings for LSU Football News