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How to Become a Real Estate Professional (What it Takes to Qualify)
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- เผยแพร่เมื่อ 16 ส.ค. 2024
- What does it mean to be a real estate professional and does it mean you have structure yourself differently to avoid higher taxes? If you've followed my advice about making more real estate deals and structuring deals then pay close attention to this video.
Understanding the qualifications in this video will give you a better understanding to what it means by becoming a real estate professional.
There's a few ways that I will show you how to receive this status in order to capture the tax benefits that are available.
WATCH NOW and please leave your comments and experiences on becoming a real estate professional below!
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ABOUT CLINT COONS
Clint Coons, Esq. is one of the founding partners of Anderson Law Group, Clint has grown his legal and tax firm to over 400 employees by assisting real estate investors with creating and implementing solid entity structuring plans. His success in these regards is in large part due to his personal investing experience. A successful attorney, real estate investor, and speaker, Clint has used his innovative and dynamic strategies coupled with knowledge borne from experience to help thousands of people save millions of dollars and build real wealth.
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The information provided in this video should not be construed or relied on as legal advice for any specific fact or circumstance. Its content was prepared by Anderson Business Advisors with its main office at 3225 McLeod Drive Suite 100 Las Vegas, Nevada 89121. This video is designed for entertainment and information purposes only. Viewing this video does not create an attorney-client relationship with Anderson Business Advisors or any of its lawyers. You should not act or rely on any of the information contained herein without seeking professional legal advice.
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So glad someone posted about this cuz no one ever talks about this
Great content. Clears up a lot of my questions. Sounds like I need to work out of my FT job and move 100% into RE to be able to be classified as a RE pro.
Correct.
Such a short and simple video that covers so many important topics about real estate tax shelter. Thank you 🙌
Glad you enjoyed it!
I know this will probably be a bit tedious, but at the 1:55 minute mark, you mentioned about what ACTIVITIES you do for the REP status (driving around for example), would you be able to cut a video about said ACTIVITIES? 🤔 Meaning listing ALL the possible activities/examples. I work a W2 job right now (part time), but I want to know and understand what I'd need to be doing during the day when I'm NOT working that W2 job so I can legally qualify for the Real Estate Professional.
Thanks for the free videos & information!
You also need pass the materially participate test which is tough if you are a remote investor and have PM manage your properties.
I'm not there yet but my goal is to be eligible for this within the next ~18 months. Thank you for the detail.
You are welcome. Thanks for watching.
I am such a fan, however little disappointed as Mr. Anderson. I sent in a request for a 30 min consultation, received the confirmation email about the strategy session. However no one has called me! Help!! Still a fan will continue to watch, and thank you so much for your video!
Sorry! Has someone reached out to you? I expedited your request.
@@ClintCoons yes thanks so much. Love your TH-cam channel. Am excited to continually learn and execute the most optimum strategies thanks to you! Excited to speak to your senior advisor!
Such valuable information! Thank you for the videos and information! I've been following you for a little bit and will be calling for my free info session VERY soon. What are the chances we can get you when we call? Are the other associates that take the calls, if you're not available, as well versed as you on all of these strategies you do videos on?
Yes I have a great team of strategist that can help get you started.
Love these guys
Brilliant!
very informative, thanks Clint. Can you make a video on cost seggregation strategy.
Also is buying a new home any better from a taxation pov? TIA, Sid
Here are 2 videos: th-cam.com/video/NEpBed2-9HA/w-d-xo.html
th-cam.com/video/j6DnpJ9t9Ts/w-d-xo.html
Here are some benefits of buying a home:
Mortgage Interest Deduction: You can deduct the interest you pay on your mortgage from your taxable income.
Property Tax Deduction: Subject to caps, you can deduct the property taxes.
Capital Gains Exclusion: When you sell, if you meet the qualifications, you can use Sec 121 to exclude $250,000 (per person) in gain from taxation.
Home Office Deduction: If you use part of your home for business, you may be eligible to deduct expenses related to that space.
How do you feel about the new 163(j) limitation and the impact it will have on syndicated partnerships? It seems an election out of bonus depreciation is wise. Otherwise the first year or more of interest will be permanently deferred.
I work full time as a real estate developer (W2 income), I also have other real estate investments outside of this, if I manage those real estate investments for at least 100hrs a year can be a real estate professional? or do the hours that I work as a real estate developer since I get paid as an employee not count?
Thank you for your helpful videos.
Would spending time investing in tax liens and tax deeds qualified for real estate professional?
Maybe on the REPS side but not on the material participation side of the test.
Question: If you grind and spend more than 50% of the time you spend on your W-2 job till you get your license, or qualify as a real estate professional, can that status be revoked if, in the following years, you don't spend as much time anymore?
Yes you can lose the status.
I have a full time job (40 hrs/week) in software. If I was able to lower my hours per week would I qualify? How many hours per week can this "other job" be (max)?
State: PA
Edit: Just found this: "if you work 1,200 hours at your full-time job that is not related to real estate, then you will need to work at least 1,200 hours in your real estate business to qualify."
Correct
Great short video. Thanks for posting. If rental property incomes in with my name as well as property ownership is under my name, can I still do REP with my wife (when filing jointly)?
QBI vs REP. Can I get both or just one? Are they different?
Do you offer a service to help or just education? This is over my head and aren't sure I want to learn this.
If you would like a FREE 30-minute consultation, you can request one here
- aba.link/30minSession
Is there a limit on losses you can claim? Thanks!
I think I had previously asked Toby if you could elect this in one year and not another and I think I was told it's not permanent, that you could as long as met the test in any year. My other question is about the hours, I get different opinions about whether it's solely the investor's time or if he can add people hired (sent appliance repair, handyman, etc.)?
You only count your time. You can count the time arranging for the people but not the time they spend on the activity.
I am Hotel Owner and in business for 27 years. I am investing buying rental properties. As a hotel Owner am i consider as real estate professional?
Tough one because hotel activity is not rental activity so the time you spend working on the hotel does not count toward REP status.
Great video! Thank you. I wish someone would show a documented timecard showing activities so it's clear as to what "real estate activity" means. For example, would being a real estate appraiser quality? Would being a real estate agent qualify? Would being a contractor qualify? Do I need to work on my properties or can I do construction work part time to qualify? I could go on and on, but the term "real estate activity" is ambiguous. Finally, in the video you used basic numbers without illustrating other deductions. Do other deductions not qualify when using Passive Activity Losses? Also, I'm assuming I can use Passive Activity Losses in arrears, but I'm not sure. Is that doable? Right now, my wife and I have over $120K in Passive Activity Losses for two properties we've owned for the past 10 years as landlords. I'm considering quitting my job and becoming a REP to reduce my wife's tax liabilities since she makes about $150K a year.
REPS requires you work 750 hours and 50% of your time in a real estate trade or business. Thus, if you are an appraiser you would qualify if this was your full time job. Once you qualify for REPS the next hurdle to free up the deductions from real estate you own is to Materially participate in your real estate activity. This means you must spend 100 hours or 500 hours depending on which of the 7 materially participation tests you qualify for. If you have met this second prong then you can use your real estate deductions against your wife's w-2 income.
@@ClintCoons I greatly appreciate your response. I know I asked a lot of questions, so thank you. To clarify, I'm not an appraiser or real estate agent, but I was considering becoming one of the two in order to meet the 750 hours and 50% for REPS. I only have two properties right now as rentals, and I probably only put in a few hundred hours a year managing those properties. Is being on the board of the HOA and participating in the HOA a qualifier? I assume yes since it seems to be a "real estate activity." The other confusing part is the 100 or 500 hours and the 7 materially participation test to qualify. I looked it up, read it about it at www.investopedia.com/terms/m/material-participation-test.asp and it's still unclear. I'd love to see clear examples. What would be really cool is if there was an app that would clarify and qualify each task and provide suggestions to get to REPS status. That would have significant value! Again, thank you!
Thanks for the video! Great info. I had a question, my wife and I have two duplexes that we have "house hacked", where we moved into them with owner-occupied loans, and then later moved out. Total work of both properties together is about $600,000. Both are still levered with an owner-occupied loan. Are we allowed to bonus depreciate those properties (now that we no longer live in them)? Thank you, I really appreciate it!
Yes provided you purchased the property after October 2017.
Hi Clint, Thank you very much for this informative video. I would like to get a confirmation. Is this 750 hours work including the hours spending on managing one’s own rental properties of passive income? Also can it include hours working on short term rental?
Yes managing your own real estate will count toward the 750 for REPS but you must still meet the material participation test of 500 hours on your own property to qualify.
@6:51 did he just say make less money to qualify for REPS?
You're a miracle bro
Thank you Clint. If not working full time, but managing the construction of a rental property that will be kept and rented, including design, physical work, purchaing, managing subs etc, while also managing five other rental properties qualify as a real estate professional?
Do your hours add up to 750? Do you have a full time job? If the answer is Yes and No then you should qualify. Make sure you make an aggregation election on your return.
Thanks.
You're welcome
What are some professions that would be considered real estate related (besides a realtor of course) that would qualify? Would working as a wholesaler for more than 750 hours per year count as real estate professional status?
Yes it would. You need to show you are in a real estate field and you do not have other full time employment. Remember you still must meet the material participation test.
My full time W2 job is in Real Estate, can I satisfy the 50% requirement?
It would depend. You can't count personal services you perform as an employee in real property trades or businesses unless you own 5% or more of the business you are working in.
Thanks for making it plain
You are welcome. Thanks for watching.
Would this apply to an llc, dumb question but on paper would irs be asking if an llc has a full time job? I’m assuming the LLC would be viewed as real estate business and separate from you?
Yes but the REPS status flows through to you personally not the entity.
Thanks
👍
Can I use my losses on my C corp as my own Management company for my real estate towards my W2 income?
No - C-Corp losses do not pass through however if you elected 1244 stock loss treatment when you set up your corporation you could dissolve it and pick up any losses on your 1040 up to 50k.
Great content thank you! I’m a PhD student with a small stipend. Any idea how they would consider my time spent working? It pays like a part time job and doesnt take 40 hours a week. On the side my husband and I own 2 properties, one is producing $ as a STR the other we are fixing up before renting.
Thanks!! I appreciate this video a lot.
Not sure. On paper you are part time so you qualify but the student part might be an issue. I would claim it if you meet the other portions of the test.
What is a "dealer" and what does it mean to be tagged as one?
I am posting a video on this next week.
What if the person doesn't have any income, passive or W-2 type, to offset the negative $82,000 against? Does that just get carried forward?
Yes
What is the alternative when husband and wife both have full time jobs? In this case, How to qualify as Real Estate Professional?
Won’t work. Unless a spouse was part time. Rewatch video
Hi Clint, I just quit my full time job and am going full time RE this year. We have 32 units but have property management in place. What other things qualify for my time? Can I count researching properties and real estate education? I am spending a lot of time on this early in the year.
It is difficult when you are not managing the property to claim REPS status. Here is what you should consider:
1. Are you are actively engaged in the day to day operations of your real estate activities (i.e., absent any real estate you will never meet this prong) and you do not have another full time job, and the total cumulative hours exceed 750 (See Reg. §1.469-5T(f)(2)(ii))
2. You document the time spent on each activity contemporaneous to the activity
3. You make an aggregation election to treat al of your real estate activity as one activity
This is never looked at in a vacuum and it is a totality of the circumstances. I would definitely track all of the hours and claim REPS status but keep in mind you may need to do more than just research.
Looking up real estate online doesn't count towards the 750hours, it's not material participation, correct me if I am wrong.
Correct.
What about using the net loss against another 1099 taxable income like another self-employed business?
This is exactly why qualifying as real estate professional status will benefit an investor. The investor can use RE losses against other forms of income.
Do you have a video on living in Puerto Rico and the business befits?
No I do not
@@ClintCoons is that something you’re versed in to make a video?
Great video! I’m a SAH mom looking to become a RE professional. What roles and/or activities does a REP do to generate the 750 required hours?
Everyone begins with looking at properties and keeping track of their time but this will not carry the day unless you purchase and self manage. Here is how I typically respond to emails on this topic:
The question cannot be looked at in a vacuum. The answer typically turns on 4 factors:
1. Do you won real estate?
2. Are you actively engaged in the day to day operations of your real estate activities (i.e., absent any real estate you will never meet this prong), you do not have another full time job, and the total cumulative hours exceed 750 (See Reg. §1.469-5T(f)(2)(ii))
3. You document the time spent on each activity contemporaneous to the activity
4. You make an aggregation election to treat al of your real estate activity as one activity
Hope this helps.
@@ClintCoons Hi there, can you explain #4 a little further. Thanks!
@@natalienaito2995 #4 is an election that you will send via a statement with your 1040 informing the IRS of your intention to aggregate your real estate activity.
Epic !!! 👏👏👏
Thanks
Thanks for sharing. Great stuff. Also, some people just own 1 or 2 properties and collect rent. Even if the wife is not a W2, but there is not much work for her to do for the 750 hrs? Any thoughts? Thx.
Keep track of all her time managing, making rent ready, screening tenants, and looking for new investments, etc. and most importantly - acquire more properties.
@@ClintCoons thx
Hi Clint, can I include travel time to and from my rental properties towards the 750 rule?
Yes it can provided you keep a detailed log. This is a facts and circumstances test the courts have gone both ways on allowing or disallowing the time. If the majority of your 750 hours is commute time then it probably wont work.
Say someone owns a farm and rents out sheds/a house on the farm as well. If the person also works for a construction company is a real estate professional designation applicable? They make countertops and doors for homes if that helps clarify
Probably not because the rental of the homes on the farm is incidental.
@@ClintCoons Okay so by your response I’m gathering that it is a good question and should be further discussed. Regardless of if applicable or not, I appreciate your comment. Thank you
Hi Clint, thank you for making this video, it is very helpful. I have my own business and have about 35 contracted hours per week of work right now as a consultant, but I spend about as much time on Real Estate research and visits. If I log the time and show >50% can I be considered a real estate professional?
Are you managing your own real estate?
@@ClintCoons I am currently shopping for SF Homes or condo-style MF that would be rented out. Hoping to get in the market in the next 6 months and am well educated on all but my specific tax-saving scenarios. Not knowing how to structure the purchase and work to optimize my taxes is currently the only thing standing in my way of purchasing.
You will most likely be using a real estate LLC with a holding LLC for anonymity. Have you considered setting up a strategy session with one of our advisors to look at your situation? If you would like a FREE 30-minute consultation, you can request one here
- aba.link/30minSession@@maverickf13
If I work 3 days a week and spend more time than my W2 on working on and managing our short term rentals, can I reach reps? Or do STRs fall into a different category? Thanks!
Wow you know how to get right to the complex. :). The time spent managing your STR counts toward your REP status 750 hours but because STR is considered a different type of Trade or Business, your time can not be used to count toward the 500 hour material participation requirement (this is the second prong of REPS). Here is a link to an ebook I put together on the subject: andersonadvisors.com/short-term-rental-strategies/
So my veteran husband is 100% TP Disabled by the VA. He can't have any income reported for himself on our joint return. Question - Will having him listed as a member on an LLC report he had income? And because I work full time as a teacher 10 months a year and he can't show he has income, the example you just mentioned as becoming a real estate professional wont work for us...is this correct?
Correct on all counts.
My wife makes $400k annually as a 1099 anesthesiologist, how much of a deduction or loss, could we take off of that, if I became a real estate professional?
It would depend on the real estate you purchase. The deductions come from depreciation so the value of the property will determine how much you receive.
I work part-time. I have 44 properties. Out of these I manage about 10 of them. I also have a mini storage facility that I manage. Now since I manage some of these properties can I qualify as a real estate professional? Does Mini Storage count? My lease rent time for my mini storage is 1 months so no short term rental with them. My concern is the properties that the management company manages. Can I add any hours I also do dealing with these properties? Or since I don't put more hours in than they do on these properties may I used all properties that I participate in or only the ones I manage? Can I count the mini storage hours I work? Can I combine the mini storage with the properties I manage to reach this 750 hours?
It comes down to the hours spent on your real estate and wether you qualify for REPS. Do you spend 500 hours a year on your real estate? Are you employed full time in non re job? Do you spend 750 hours on re related activity? All of these need to be in the affirmative and you should qualify. Best to check with your CPA.
Any recommendations for a good time logging/time documentation program or phone app?
MileIQ is popular
This was great! Can the spouse be working part time and still claim the 50% of time as well if we file jointly?
If the spouse works under 20 hours a week then yes that is possible for the spouse to qualify if all other factors are met.
I have a Fulltime W2 job and my wife is at school full time.Dos she qualify as a Realestate professional?
If she is a student but can show she works and meets the 750 hours, material participation, etc. then possibly. The 50% of your time is determined based upon employment.
What about a professional football player or basketball player who may only “ work” 6 hours per day/ 6 days per week for 4 months of the year, can they qualify under the 50% rule?
Interesting - that is a real possibility. I have not looked into it.
@@ClintCoons Is there any IRS ruling regarding professional athletes claiming RE professional status when providing services for their own new construction properties? I can envision lots of opportunities for services provided during new construction.
Good stuff
Glad you enjoyed
If my spouse is a licensed real estate property manager for her full time job, does she already qualify as an RE Professional?
Most likely yes but then she would also need to meet the real estate professional test of 100 hours on your real estate to qualify.
Is there an app to track the hours spent in real estate (just like app tracking mileage)?
I hear a lot of people like MileIq
Do the guidelines for Real Estate Agents to qualify as a RE Professional apply to MLO's?
Not according to the IRS see Hickam, T.C. Summ. 2017-66
So, then a Real Estate Agent profession has nothing to do with this professional status?
A real estate agent can meet the status based on activity level. Here is a tax court case itch , T.C. Memo. 2012-358 discussing an agent's duties to qualify.
Can you and your spouse combine hours to equal or surpass 750 hours?
Not for purposes of REPS but yes on the material participation test (500 hours)
B
WoW 🤩
What if I own a business that’s operates without me being there?
The income would be passive.
Trying to remember- doesn’t flipping more than 6 houses a year put you in the professional category?
It could be 1 property if you meet the tests. Flipping makes you a dealer which is different than claiming real estate professional status.
@@ClintCoons thanks. Thinking about doing some flips with my son.
Do I need to take any courses or obtain a certification to become a Real Estate Professional?
No but some might convince you of it to make $$.
@@ClintCoons thanks! I really appreciate you getting back to me so quick
@@ClintCoons I'm a stay at home Dad because of the pandemic and my wife is a doctor so we're looking to invest
Ok complicated situation. I would like to have my wife as the Real Estate Professional but the Real Estate that we own I have is in mainly LLC's that my name is attached too. Does that matter? We are in Ohio. We have all kinds of real estate and businesses and I do work 32 hours in my primary business. We have a commercial plaza 4 tenants(1 is also us) with no Mgmt company , we have like 8 syndicated properties (limited partnerships-some hotels, some apps and some commercial) and we are also starting to flip homes. How crucial is it that her name is on these LLC's ? and if we can get her to qualify as a Real Estate Professional I imagine we can use the syndicated properties losses against my income as well. TIA
It does not matter who is listed on the LLC. If you wife qualifies for REP status then it will apply to all of your real estate investments.
@@ClintCoons Thanks!! To be clear the homes she will be flipping and the commercial plaza we own that she will be managing will be what builds her 750 hours + to establish being a Real Estate Professional. But Both LLC's are in my name - So that's ok as I understand you? And that the syndicated properties would then be available as non passive losses- correct ? Thanks again for the quick response!!
@@anthonyshaia5647 Who owns the LLCs is not relevant but the LLC activity and time spent on the activity is. REPS is only one part of the requirement. Your wife must spend 500 hours on your investment real estate to benefit from REPS status.
@@ClintCoons Thanks!!
Here is a thought - my wife and I are both dentists but she doesn't work in the office that creates a bunch of active income(she helps maybe 20 hours a year max). I have an S corp and and I am 100% owner but if I give her lets say 20-30 % ownership and since she is not active in the business will that create passive income that can be offset with our passive losses if they deem her not a Real Estate Professional. I know it is highly litigated - just trying to think of a backup plan if they decide to say no on REP status. my guess is there is not real downside to create this passive income for her because if it is not offset by passive losses it becomes added to out AGI anyway the same way it would have been had it stayed all in my name. BTW do you private phone consults or recommened anyone that does? Thanks and I appreciate your time. Tony
What if your wife / Husband is disable?
If they can actively participate in real estate then he should still qualify. It would depend on the the level of disability.
If I maybe childish for a moment. This is proof women aren't a liability they are an asset. They maybe expensive up front but they pay dividends at the IRS.
I would imagine the same strategy applies to same-sex couples, if you find that less expensive up front. Just watch out on the back end...
not qualified and not getting married for that purpose, the end