REPS 02: How You Can Offset W-2 & Active Business Income by Qualifying as a Real Estate Professional

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Qualifying as a real estate professional allows landlords to use rental losses to offset their other, regular, income. Without qualifying as a real estate professional, your rental losses may be suspended.
Today we take a deep dive into real estate professional status and discuss hours that count and don't count, myths, and Tax Court cases.
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Опубликовано:

10 сен 2024

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Комментарии : 36

@Tmilez Год назад

Absolutely love the REP series. Listened to all episodes twice and now feel extremely prepared. You guys rock!

@MissAlpal123 Год назад

This is by far the clearest and most detailed explanation of this designation! Thank you so much for the helpful content, including examples & scenarios to consider… can’t wait to listen to the 3rd in the series for more strategies 👍

@CatalystHomeTeamAtlanta 3 года назад

really great content! i took a bunch of notes and learned a ton. first up, i need to start tracking my hours for material participation! yikes! i'm glad i found this 5 months in to my first STR and not 5 years ;) thanks for taking the time to share with us! i loved your citation examples.

@TheRealEstateCPA 3 года назад

Thank you!

@shondiguglielmo6155 2 года назад

Wonderful information that I didn’t want to hear but NEEDED to hear. Thanks for the sobering honesty as I consider this status.

@dileepkamujula3176 Год назад

Not sure if RU-vid did a good job surfacing this video to more people or not many people search for this kind of content. I loved it and I was wondering why there were fewer view on these golden videos. Loved you both. Thank you Brandon and Thomas. I was wondering about whether or not spouse’s full time real estate investor’s losses offset W2 income of the other spouse when filing jointly?

@ReasonableHuman1 10 месяцев назад

Tnx

@byrdebrain5671 2 года назад

Thank you. Clarifying question… at ~45:00-46:00 minute mark you discuss “educational hours”. My question is about educational hours, but not podcasts or seminars, as discussed in this episode. The question is if someone has a multi-property rental real estate business AND is enrolled and completed a Real Estate Agent course and taking/took the Real Estate License exam, do those studying hours count toward REP 750 hours? Thank you.

@Team8LA 4 месяца назад

what if there is already negative from W2 job? A friend as on worker comp last year, no tax liability, so what is the non-passive loss recorded? Thank you!

@HenriqueFerreiraMG 6 месяцев назад

Can you please clarify: You said that travel time, education and research count doesn't count as Real Estate Professional. Would those count for material participation?

@rksutube1 3 года назад

If you utilize a property management company for your rentals what activities you do yourself would be considered material participation? Such as: book keeping, finding properties to purchase for rental, paying bills such as HOA, paying management company fees, accounting, taxes, emails, reviewing tenants, approving and selecting repair professionals. If you have a management company you are not doing the repairs or maintence just managing and authorizing said activities....thank you for your informative video!

@TheRealEstateCPA 3 года назад

If you have a property manager, they are the ones that are materially participating. The hours you described would be considered "investor" hours and are only applicable when you are involved in the day-to-day management of the rental.

@serat0947 2 года назад

To clarify, if I self manage my properties then investor level activities, bill paying, research, taxes, bookkeeping, etc count for material participation? I don't have a property manager so I do all paperwork and record keeping for my rental properties.

@linayi3179 3 года назад

Thanks for the awesome explanation. I have 3 questions regarding those. 1. For material participation: I am managing my long-term rental property myself with some help from the cleaner and show manager. Does that mean I can try to hit the test for 100 hours instead of 500 hours? Since it's a huge difference, Trying to understand between those two numbers. 2. For real estate professionals time for 750 hours, does the education and exam time count to get a real estate license? 3. If I can hit both real estate professional time and materially participate time rules with my A, B, and C property. Can I bonus depreciate and cost segregation my D property which I am not materially participating for? Looking forward to hearing back. Awesome content. Please keep on updated. Thank you

@TheRealEstateCPA 3 года назад

1. For the purposes of material participation there are 7 tests. If you are aiming for the "100 hours and more than any other individual" test, then self-managing is a great way to go. 2. Education time does not count. 3. Material participation is property-by-property unless you make an election to group all properties into one activity.

@MrJoshdrew 2 года назад

How do you make an election to group all properties?

@ohheyalan123 Год назад

@@MrJoshdrew I believe you just type it up on a piece of paper as a statement that you’re electing to have all your properties/activities grouped.

@semajaytruth975 Год назад

So if passive income is the goal then what’s the tax benefit? Sounds like trying to qualify as an REP you would essentially be working a second job. Why even be in real estate?

@Steven-vi5nb 2 года назад

If I were to purchase a handful of STRs in multiple states with the intent to self manage everything except outsource repairs and cleaning. Would time spent configuring automation software for all the properties, automated text messages to guests/cleaners, to self manage these properties count toward my 750 hours of material participation?

@gmoney343 Месяц назад

can I run a cost segregation study on non-short term rentals?

@TheRealEstateCPA Месяц назад

Yes

@EPLrealty Год назад

Great video. I am a real estate broker and I have a number of commercial properties, in my leases the tenants are responsible for all repairs and maintenance of the property. I handle everything else. Does the fact the tenants pay and handle all repairs and maintenance as part of the lease, come in to play for material hours calculations?

@rashidkhalil4631 Год назад

great video. very humble approach, love it. Now here is my situation----w2 job 32 hrs/ week x 45 weeks = 1440 hrs per year with 500+ k income, now which means i need to work 1441 hrs a year in material participation in real estate. if I own and manage an apartment building obviously with support staff and an employed manager but not a property management company. is this situation promising for real estate pro status? can i use that status to qualify for STR bonus depreciation against w2 income? will truly appreciate your input. thanks in advance.

@TheRealEstateCPA Год назад

Its generally very challenging, if not impossible to qualify if you have a FT W-2 job. There was only 1 tax court case out of countless where a FT W-2 employee was able to qualify as an RE Pro and it was unique circumstances. Not saying it's too possible, put an uphill battle with the odds stacked against you. STRs are generally not considered for REPS per several tax court cases. However, the reqs for the "STR Loophole" are more relaxed and don't require you to spend more than half your total working time - making it a much more popular strategy amongst those with FT W-2 jobs.

@khongcolong 2 года назад

I am a self employed business owner, how should I keep log of my hours in my business to satisfy to the court incase of an audit?

@s.c.9022 2 года назад

If my spouse or I qualify for REPS and get a cost seg done, can we use the losses to offset crypto/stock capital gains tax from the same year?

@Steven-vi5nb 2 года назад

I think you can use it to offset crypto/stock cap gains...however strategically I don't think it's the best use of a write-off because you'd only save 15% or 20% toward cap gains tax vs potentially 32% or 35% off your fed tax rate.

@paoladiaz6741 Год назад

How about if you are the person managing the property and want to learn about maintaining or plumbing or electrical certifications? Would that time count? As it is relevant to the job, would I be able to write off the cost of the training?

@ach4935 3 года назад

Excellent

@TheRealEstateCPA 3 года назад

Thank you!

@johnnyb33good21 2 года назад

how does the "real estate professional status" affect real estate agents earning commissions as a 1099 & self-employment taxes? i own 37 units multifamily units in Phx, Az I want to use the real estate professional status to offset my ordinary income as an agent. thanks for the help guys!

@lseh4720 10 месяцев назад

My husband would believe it if I told him it took me 56 hours to install a toilet-that’s because I would have broken something and made a mess. :-)

@AkireMaru 2 года назад

Almost through the video, but not quite. So apologies if you answered this question elsewhere. If we run a STR business and as we scale, get Virtual Assistants to do more of the work and property managers to manage some aspects of our remote rentals, do I become in danger of failing the material participation test? Or can I show, by virtue of only working on this one business, that I am a material participant but at the managerial level? Can I count the VAs time that we hired?

@dewaynecothron9461 2 года назад

There is a court case where they allowed travel time. Are you familiar with this case?

@TheFreedom4you 2 года назад

Thank you for making this, you guys know your stuff! Question: I understand the more information is always the better, but will the IRS accept a calendar log (for example) that lists ONLY the hours I worked material participating on my properties? Or does the IRS require in the actual tax code that I also list what I was doing during all those hours in the calendar log? I've heard both arguments from CPA's that I've talked to in the past; as long as I attached a memo saying "these hours don't include an travel time, education, supervising pm's"