Leveraging IRC 469 Real Estate Professional Rules for Individual Taxpayers: Avoiding Passive Loss Limitations

Identifying and Grouping Real Estate Rental Activities, Meeting Material Participation Thresholds

Recording of a 110-minute CPE webinar with Q&A


Conducted on Wednesday, September 6, 2017

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will provide tax advisers with a thorough and practical guide to navigating the real estate professional rules of IRC 469(c)(7). The panel will discuss the general passive loss limitation rules and exceptions for real estate activities, and will detail the material participation standards, grouping rules, and quantitative tests under Section 469(c)(7)(B). The webinar will also provide useful guidance on available aggregation elections to avoid passive loss limitations.

Description

An often crucial aspect of tax planning for individuals with rental real estate is whether their rental activities meet the threshold by which the taxpayer can be classified as a “real estate professional” under the rules of IRC 469. For many individual taxpayers, having rental activities qualify for real estate professional designation can result in significant income tax savings through avoidance of passive loss limitations.

Real estate rental activities often create tax losses through depreciation while generating positive cash flow. However, the default tax treatment for real property rental income or loss is passive, and rental losses cannot be applied to offset nonpassive income. Rental activity deemed passive is subject to the net investment income tax (NIIT) for income amounts over the specified threshold.

Treasury has established several safe harbors for individual taxpayers to meet in avoiding passive treatment on rental income and loss. Although the safe harbors set forth bright-line tests, the determination of whether a taxpayer meets the threshold to quality as a real estate professional is a challenge for most tax advisers.

The existing regulations require that a taxpayer prove qualification as a real estate professional by identifying and grouping real estate rental activities and then by meeting the material participation thresholds for each activity or grouping.

The regulations provide seven tests to determine material participation. Tax advisers must thoroughly understand each of these tests to determine whether their client’s rental activity may qualify for real estate professional treatment.

Listen as our experienced panel provides a thorough and practical guide to the real estate professional rules for individual taxpayers with rental real estate activities.

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Outline

  1. Default passive income loss limitation rules under Section 469
  2. When an individual taxpayer would want to be classified as a real estate professional
  3. Determining whether a taxpayer is a “real estate professional”
  4. Material participation tests
  5. Section 1.469-9 grouping/aggregation election
  6. Documentation requirements
  7. Illustrations and examples

Benefits

The panel will discuss these and other important questions:

  • The default passive loss treatment for real estate income
  • Grouping real estate rental activities
  • Applying the material participation tests to individual or grouped real estate activities
  • How the Sec. 1.469-9 aggregation election functions

Faculty

Lovett, Brian
Brian T. Lovett, CPA, JD

Partner
WithumSmith+Brown

Mr. Lovett has extensive experience serving the tax needs of both public companies and closely-held businesses,...  |  Read More

Bartolf, Scott
Scott Bartolf, CPA

Senior Tax Manager
WithumSmith+Brown

Mr. Bartolf specializes in individual, partnership, corporate, estate & trust taxation and, state tax audits. He...  |  Read More

John H. Skarbnik
John H. Skarbnik

Professor of Taxation, Fairleigh Dickinson University; Tax Counsel
McCusker Anselmi Rosen & Carvelli

Mr. Skarbnik is full professor in the University’s Masters in Taxation Program. In his law practice, he...  |  Read More

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