ralphv Posted January 20, 2010 Report Share Posted January 20, 2010 Correct me if I am wrong: I have a client that owns two rental properties. During the last three years, he has over 50K in losses that were not deductible due to income limitations (W-2 income over 150K). He is going to retire early in 2010 (June)and thus the rental units will be his sole responsibility. That being said, if he has the necessary hours (750 I believe) he can qualify for "Real Estate Professional" status, making his loss for 2010 fully deductible. Can the taxpayer carryforward the loss from the previous three years and apply to 2010 return and if not where or in what situation can they be applied. Thank you. Quote Link to comment Share on other sites More sharing options...
jainen Posted January 20, 2010 Report Share Posted January 20, 2010 >>making his loss for 2010 fully deductible<< Since he is presumably working full time until he retires, he will already have logged more than 850 hours there so he would have to put in 40 hours per week for the rest of the year to meet the 50% test. And even next year, how would he convince anyone that he averages 15 hours per week managing only two properties? Anyway, no. In my opinion, if he treats his rental real estate as a non-passive activity he still can't deduct suspended passive losses until he generates passive income or disposes of the property. Quote Link to comment Share on other sites More sharing options...
ralphv Posted January 20, 2010 Author Report Share Posted January 20, 2010 The individual works for the govt. and has about 2 months accumulated leave that he plans to use before retirement. He is both active and materially participating in the rental activities and also perf. repairs/renovations, besides managing. Do the regs spell out minimum # of properties to qualify for R/E prof.? If so, what #? Quote Link to comment Share on other sites More sharing options...
jainen Posted January 20, 2010 Report Share Posted January 20, 2010 >>Do the regs spell out minimum # of properties to qualify for R/E prof.?<< No, of course not. When you put it that way, I see how unreasonable I was. Silly me. Quote Link to comment Share on other sites More sharing options...
ralphv Posted January 20, 2010 Author Report Share Posted January 20, 2010 Ok, good. So even if client could qualify for R/E prof. status, suspended losses can only be used to offset passive income in the future when he sells the properties whereby he would generate a gain on the sale (unless real estate keeps loosing value)or gain on other passive activity. In that situation, his gain from the sale of the rental properties would be lowered by his suspended losses, correct? However, rental loss incurred in 2010 would be fully deductible. Quote Link to comment Share on other sites More sharing options...
NECPA in NEBRASKA Posted January 20, 2010 Report Share Posted January 20, 2010 You crack me up. I needed a laugh. In response to Ralph's question, I went through an audit several years ago on real estate professional and even with five commercial properties, it was a very hard sell. My client was retired with no other source of income. Make sure that your client keeps a log of hours and mileage to prove that he had the hours in. You never know when your client will get picked for an audit and he had better be able to back up his return. Quote Link to comment Share on other sites More sharing options...
ralphv Posted January 21, 2010 Author Report Share Posted January 21, 2010 Jainen, thank you for your input. NECPA, I am glad you got a laugh out of this. Yes, doucumentation helps quite a bit at audit time. You can also throw in deep pockets and a good tax attorney as well :-). Quote Link to comment Share on other sites More sharing options...
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