We have a 12 unit and a 8 unit purchased in 2014 and 2015 respectively.
We are considering filing as a Real Estate Professional by qualifying for the 2 criteria 750 hours (aggregate properties) as well as time spent on RE > Time spent on regular job
I hear the RE Professional exemption is a red flag for tax audit. I am trying to get a sense of people on this forum who have applied, and qualified, without an audit and to see if anyone has an opinion on whether we should back off from trying to get this exemption.
Review the points below and let me know if you think these are red flags for the IRS or if you have experience in this area- The person qualifying as RE Professional will be my husband. We both have jobs, mine is FT (in consulting, so my hours are recorded), he works in a company partly owned by him, but still a w2 employee of the company (non RE related).
- My husband works on all RE related activities and we have diligently recorded dates and time spent doing certain activities, totaling >800 hours.
- Individual and combined income from W2 will definitely be MUCH greater than any rental income we have made from our properties.
- We have property managers for both properties.
- One is out of state, the other is in state but 1.5 hours away.
Debunk or Agree based on experience:I hear that acquisition related hours and discussion with property manager do not qualify within the 750 hours.
I hear that if you are a landlord and not an agent/broker you MOST LIKELY will be audited and are likely to lose in court if they basically throw out all arguments on "hourly accounting" in court.
Even if you dont answer any of these, please narrate your experience with filing, that alone could be helpful!