Contractors can sometimes qualify for tax benefits of IRS’s “real estate professional” status
Jul 8, 2011
An often-overlooked area of the tax code is the “real estate professional” status, which generally allows for the current deduction of rental losses, consequently providing significant current income tax benefits.
A recent tax court case addressed the concept of a real estate professional for purposes of determining whether a rental loss incurred by a taxpayer (normally treated as a non-deductible passive loss) is currently deductible. The James F. Moss v. Commissioner case focused narrowly on the taxpayer’s utilization of on-call hours in an attempt to meet the real estate professional hours requirement. However, it also discussed the issues surrounding what constitutes a real estate professional, which is worthy of reconsideration, especially for those in the construction industry.
According to regulations, what qualifies as a real property trade or business, and thus, a real estate professional, is very flexible based on the facts and circumstances of the specific situation. Generally, to be deemed a real estate professional, two criteria must be satisfied:
- More than 50 percent of services performed during the year are performed in “real property trades or businesses”
- More than 750 hours of services are performed in this area
“Real property trades or businesses” refer to any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade of business.
Construction industry workers can often qualify as real estate professionals by virtue of the hours worked inside the construction company. YOU might be a real estate professional.
