Big Tax Benefits for Becoming a Real Estate Professional

If you have rental properties, you know that there are some years when you have losses in either real income or taxable income on the properties.  Unfortunately, most part time real estate investors are only able to take these losses as passive losses.  Passive losses can only be offset against passive gains.  Passive means things that aren’t earned by labor.  If you have accumulated passive losses you can only deduct them against passive gains from financial investments or real estate income.   

The way to get around this rule is to qualify as a real estate professional.  The IRS considers someone a professional when they earn at least half of their income from the trade and work at least 750 hours per year in the business.  If you qualify as a real estate professional than you can deduct your real estate losses against ordinary income such as income from an employer or another type of self-employed business. 

  If your real estate earnings are getting close to the 50% of your total income, you might want to work hard to make the income cross the hurdle to be able to deduct future real estate losses against ordinary income.