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Do you or your wife qualify as real estate professionals-
Under IRC § 469(c)(7) & Reg. 1.469-9, if the taxpayer spends the majority of his time in real property businesses, meeting the 1/2 personal services and 750-hour tests, rental real estate losses are no longer per se passive. If the taxpayer materially participates in each rental real estate activity, losses are fully deductible. If not, even though the taxpayer is a real estate professional, losses are passive and deductible only up to $25,000 (if MAGI is less than $100,000).
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
Is she more than 5% owner?
Real property trade or business means real property development, construction, acquisition, conversion, rental operation, management, leasing or brokerage. Time spent as an employee in real property activities counts only if the taxpayer is more than a 5 percent owner.
If she qualifies as described above than she can claim the loss.
When you say 50% owner- Is she 50% owner of the place where she performs her services as a real estate professional?
In that case you will be able to write off the loss from rental property since she may qualify as a real estate professional.
You may want to provide the information on IRC § 469(c)(7) & Reg. 1.469-9 to your accountant and ask him to review the situation in light of these regulations- link to which is provided below-