Tax Issues for Real Estate Professionals


Understanding the intent and application of the rules surrounding passive activity losses can be very challenging for both taxpayers and tax preparers. In 1986 Internal Revenue Code Section 469 (Passive Activity Losses and Credits Limited) was introduced to prevent taxpayers from sheltering income from tax by using losses derived from passive activities to offset income earned on activities in which the taxpayer materially participates. However it was later seen that these regulations had a disproportionately negative impact on those taxpayers who were directly and actively engaged in real estate business, and in 1993 a new section of code was added to IRC §469 to create the category of taxpayers known as "real estate professionals".

This video-based course presents a comprehensive overview of that added section of code known as IRC §469(c)(7), which defines eligibility for the real estate professional designation and sets out the rules for the treatment of income and losses from real estate business activities. The tests for taxpayers to qualify as a real estate professional are discussed along with the pros and cons of aggregating different real estate activities into groups. The rules for classifying taxpayers as real estate dealers are also presented together with the impact of this classification on the characterization of income and losses from real estate activities. The explanation of these so-called "dealer rules" is supported by several specific examples in which the rules are applied. 

The course features Robert Cross, PA, ABA, ATA who has 30 years of experience in preparing taxes for businesses of different types and is Past President of the National Society of Accountants (NSA). 

Learning Objectives

After completing this course, students will be able to:

  • identify the conditions that must be met for a given taxpayer to be classified as a real estate professional
  • identify the main benefits to the taxpayer of grouping several rental real estate properties into a single activity
  • identify the main goal of the implementation by the Treasury Department of dealer rules under Temp. Reg. § 1.469-2(c)(2)(v)
  • given examples of cases where real estate property has been purchased by a real estate professional and later sold, apply the dealer rules to correctly determine the nature and reporting of the income and losses from that activity

Designed For

CPAs, EAs, and other tax professionals
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