Previous Events
Reduce Your Small Business’
IRS Audit Risk: Bond Beebe’s Guidance for Keeping Uncle Sam from Knocking
View the Presentation
Taxes and Estates:
Preparing for Today,
Planning for tomorrow
View the Video
Sizzling Hot News
| State Tax |
| Federal Tax |
| Estate |
| Accounting |
| Financial |
| Other |
BB Bloggers
| Click here for bios |
Bond Beebe Links
| Bond Beebe, Accountants & Advisors |
| Bond Beebe Forensic |
| Greater Washington DC Family Business Alliance |
| Payroll Auditing Portal |
Receive Updates
Join Our Mailing List
Real estate professionals now allowed late election to group rental real estate interests |
| Written by Glenn Bailey on Thursday, 02 June 2011 | |
|
The IRS has issued Revenue Procedure 2011-34, which allows most real estate professionals to make a late election to treat all interests in rental real estate as a single rental activity for the purpose of applying the passive activity loss rules. Prior to this an election had to be filed with the original tax return, or a Private Letter Ruling could be requested, which was a costly and burdensome process.
The real estate professional exception allows a person who works in any real estate related business and performs more than ½ their total services and at least 750 hours of services for the year in a real estate business that they own to deduct their losses without passive activity loss limitations.Otherwise rental real estate is considered a passive activity and the losses are only allowed to the extent a person has other passive income.
Normally the rules of material participation requires a person to qualify for each individual activity. The real estate professional is allowed to make an election to group some or all of their rental activities for the purpose of meeting the hours requirement. This can enable them to deduct losses from businesses that they might not individually spend enough time participating in to qualify, but collectively they have enough time to meet the participation rules.
The grouping rule only applies to rental property. You can’t group a rental with your full time real estate sales job. If you have deducted your rental losses in a prior year and might not have met the material participation rules for each individual property but did overall, you can now make this election by filing an amended return for the first year that you wish to apply the rule to group your activities.
The election is then valid for all subsequent years until revoked or changed by the taxpayer. The election can only be made for a year that is still “open” (not past the applicable statute of limitations assessment period).
This could be a big help in avoiding a bad outcome in an IRS audit challenging your ability to deduct the losses. Improper passive loss deductions have been a popular audit target over the last several years, with large losses drawing particular scrutiny.
The Revenue Procedure describes the specific requirements and limitations for making the late election. If you think this rule might apply to you please follow these requirements carefully or consult with your tax adviser. |