How can you boost your after-tax return on your real estate and other investing? Normally, a taxpayer’s rental property losses are limited to $25,000 per year or less, but a landlord can deduct unlimited rental property losses by qualifying as a “real estate professional.” A real estate professional. can take unlimited losses, but the rules are complicated. You have to qualify yourself and your activities with a loss property
Real estate pros can deduct unlimited rental losses, but must spend over 50% of their working hours and more than 750 hours per year materially participating in real estate.
Bad news for a full-time real estate agent who also owns rental properties: Even though the agent is a real estate professional he can’t deduct rental losses in a rental activity because he didn’t “materially participate” in the rental activity. To satisfy material participation, over 500 hours must be spent in the rental activity or just 100 hours as long as no one else, including non-owners, puts in more time. Use of a property manager will shoot you in the foot!
My advice: Make sure that you spend the required time working with the property and with real estate activities. If you have any questions, call Wis.