If you qualify as a Real Estate Professional under IRS rules, your rental activities may not be subject to the normal passive activity loss limitations. As a result, you may be able to deduct rental losses that would otherwise be suspended. You can also make this entry if you sold, exchanged, or otherwise disposed of your rental property during the tax year, as this may affect how losses are calculated and reported on your return.
Entering Real Estate Professional Status in the Program
To indicate that you are a Real Estate Professional or that you disposed of the property during the year:
- Select Federal.
- Select Income – Select My Forms.
- Select Profit or Loss From Rentals and Royalties (Schedule E).
- Open Rent and Royalty Basic Information.
- Check the box labeled:"Check here if you are a real estate professional or disposed of the property this year."
After checking this box, continue through the Schedule E interview and complete all required rental income, expense, and property information.
Why Is This Important?
The program uses this information when applying the passive activity loss rules.
If you qualify as a Real Estate Professional and materially participate in your rental activities, some or all of your rental losses may be deductible against other income, such as:
- Wages
- Self-employment income
- Investment income
Similarly, if you disposed of your entire interest in a rental activity during the year, previously suspended passive losses may become deductible, depending on your circumstances.
Before Selecting This Option
Make sure you meet the IRS requirements for Real Estate Professional status. Generally, you must:
- Perform more than 750 hours of services in qualifying real property trades or businesses during the year, and
- Spend more than half of your working time in those real property trades or businesses in which you materially participate.
You must satisfy these requirements for each tax year you claim Real Estate Professional status.