If You Want to Claim Real Estate Losses, You Will Need Significant Documentation

It is now harder for you to report significant losses to the IRS and claim a 4699c tax exemption and recent court cases have proven this to be true, such as the Peter Hofinga case.

Anybody who engages in various business activities must divide them between passive and active. Active ones are those you are directly involved in, such as the ownership of a business, while passive activities are those that you don’t really invest money in.

A per se passive activity are things that are always considered to be passive no matter how much time you spend on them, such as rental activities.  Rental activities will not considered passive if you materially invest in them.

If you are in real estate business, the per se passive rule does not apply. You must spend about 750 hours a years on real estate business, however, to even be considered a real estate businessperson by the IRS and to receive any kind of tax exemption.

An important thing to keep in mind is that you should keep a log of all your properties and how much you spend on each of them on a weekly basis. You may need to show these to the IRS in order to qualify for anything.

Things nowadays are not looking so favorable for those investing in real estate and curious if they are eligible for any tax exemptions. Income that is not passive will not always be considered eligible for the 469c7 tax exemption since they are more likely to accrue a significant amount of income.

However, they still won’t be subject to the new Obama income. This is a mixed blessing but still makes things more difficult for those who invest in real estate.