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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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AS AN INVESTOR(NOT A PROFESSIONAL) I SPEND 500 HOURS A YEAR

Customer Question

AS AN INVESTOR(NOT A PROFESSIONAL) I SPEND 500 HOURS A YEAR ON REAL ESTATE INVESTMENTS AND TRUST DEEDS. ON A TRUST DEED FORECLOSURE WHERE I TAKE A LOSS CAN I DEDUCT THIS LOSS FROM MY INCOME TAX?
Submitted: 5 years ago.
Category: Tax
Expert:  RD replied 5 years ago.

If you are an investor buying and selling real estate than the passive loss rules will not apply to you. You will deduct the loss from the real estate as a capital loss on Sch D. If you held the investment for more than a year than the loss is long term capital loss.

 

If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed against your other income is limited to $3,000, or $1,500 if you are married filing separately. If your net capital loss is more than this limit, you can carry the loss forward to later years.

 

Sec 469 (C)(7) applies to you if you are in real estate business. the term ''real property
trade or business'' means any real property development,redevelopment, construction, reconstruction, acquisition,conversion, rental, operation, management, leasing, or brokerage trade or business.

 

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.

 

Customer: replied 5 years ago.

I KNEW ABOUT THE $3000 DEDUCTION. MY QUESTION WAS MORE SPECIFIC. IS THERE A LAW OR STATUTE THAT WOULD ALLOW ME TO DABBLE IN REAL ESTATE SO THAT I FIT INTO "ACQUUISITION- RENTAL-MANAGEMENT"I WAS TOLD THAT THE GUIDLINE WAS SPENDING 500 HOURS AT IT?

Expert:  RD replied 5 years ago.

The guide of 500 hours was more specific to proving that you are actively involved in the activity. When you are actively involved in a passive activity (in this case you are not renting the estate but buying & selling and hence the activity is not passive) you can claim losses incurred subject to the passive loss limitation.

 

For claiming investment loss you do not need to meet this criterion.

 

Here is a link to what is considered passive activity:

 

http://www.irs.gov/publications/p925/ar02.html#en_US_publink1000104565

 

 

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.

Customer: replied 5 years ago.

I KNEW ABOUT THE $3000 DEDUCTION. MY QUESTION WAS MORE SPECIFIC. IS THERE A LAW OR STATUTE THAT WOULD ALLOW ME TO DABBLE IN REAL ESTATE SO THAT I FIT INTO "ACQUUISITION- RENTAL-MANAGEMENT"I WAS TOLD THAT THE GUIDLINE WAS SPENDING 500 HOURS AT IT?

Expert:  RD replied 5 years ago.

The only way you can get around this is to convert your investment property to rental property and rent it for a reasonable period of time. Once it is a rental property you can take a loss write off on disposition of such property.

 

What is reasonable period is not defined under the law. Based on case laws and judgements - renting the property for atleast 8-12 months can be considered reasonable.

 

 

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.

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