Over the last several years, the IRS has been researching the topic of Real Estate Professional and there is now a very detailed internal IRS publication used by auditors to determine Real Estate Professional status and has now very detailed information about what activities qualify as valid activities for a Real Estate Professional.
The final ruling of the audit expressly said that in order to qualify for Real Estate Professional status, that someone needed to put in 750 hours in directly and actively managing and maintaining their own properties and tenants, and that it did not include hours spent in working through a property management company.
The material participation requirement applies separately to each rental activity (unless the taxpayer made a timely election to group all his rentals as a single activity).
If you are claiming to be a real estate professional on your tax return, you must be able to substantiate 750 hours worked in this profession and show that this was more hours than you spent in any other business endeavor.You must maintain detailed, accurate, and contemporaneous records.
The IRS will go through your diary very carefully, and, according to their new Real Estate Professional guidelines, may disallowed many hours.
