Tax Tip – Safe Harbor for Certain Real Estate Professionals

Tax Tips provided by Don Fitch, CPA

In the case of a Real Estate Professional that participates in a rental real estate activity for more than 500 hours during the year, or has participated in such a real estate activity for more than 500 hours in any five tax years (whether or not consecutive) during the 10 tax years that immediately precede that tax year, then:

(1) such gross rental income from that rental activity is deemed to be derived in the ordinary course of a trade or business and not subject to the net investment income tax; and

(2) gain or loss resulting from the disposition of property used in such rental real estate activity is deemed to be derived from property used in the ordinary course of a trade or business and not subject to the net investment income tax (Reg. Sec. 1.1411-4(g)(7)(i)).

For purposes of establishing participation for this purpose, any participation in the activity that would count towards establishing material participation under Code Sec. 469 is considered (Reg. Sec. 1.1411-4(g)(7)(ii)(A)).

The term “rental real estate activity” means a rental activity within the meaning of Reg. Sec. 1.469-1T(e)(3). An election to treat all rental real estate as a single rental activity under Reg. Sec. 1.469-9(g) also applies for this purpose. However, any rental real estate that the taxpayer grouped with a trade or business activity under Reg. Sec. 1.469-4(d)(1)(i)(A) (i.e., where the rental activity is insubstantial) or Reg. Sec. 1.469-4(d)(1)(i)(C) (i.e., where a rental activity is grouped with a trade or business owned in an identical percentage) is not a rental real estate activity (Reg. Sec. 1.1411-4(g)(7)(ii)(B)).

The inability of a real estate professional

Brenda Fitch Real Estate Professional
Brenda Fitch Real Estate Professional

to satisfy the above safe harbor does not preclude the taxpayer from establishing that such gross rental income and gain or loss from the disposition of property, as applicable, is not included in net investment income under any other provision of Code Sec. 1411 (Reg. Sec. 1.1411-4(g)(7)(iii)).se allow me 2-3 minutes to confirm the refund eligibility, and process it immediately.

Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.

DON FITCH, CPA
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This blog post is intended to serve solely as an aid in continuing tax education for Don Fitch Accountancy blog and email members. Due to the constantly changing nature of the subject of the materials, this product is not appropriate to serve as the sole resource for any federal tax, accounting opinion, tax return position, and must be supplemented for such purposes with other current authoritative materials. The information in this blog post has been carefully compiled from sources believed to be reliable, but its accuracy is not guaranteed. In addition, Don Fitch Accountancy is not engaged in rendering legal or other professional services and will not be held liable for any actions or suits based on this blog post, email, or comments made during the above presentation. If legal advice or other expert assistance is required, seek the services of a competent professional.

(Updated 02/27/2021 13:20)

Published by Don Fitch, CPA

Offers in Compromise, Wage Levy Releases, Installment Agreements, IRS Audits, and much more IRS assistance. Also, allow us to Help you complete your Tax Returns from 1913 to present (100+ Years) and for any of the 50 States.

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