How do you desinate yourself as a real estate professional in turbo tax?

[hansonruss49]

Where in turbo tax do you go to designate yourself as a real estate professional and how does that designation affect effect a business loss?  

[Coleen3 · Accepted solution]

It does not affect a business loss but allows you to be able to deduct your passive losses from rental property if your income would normally not allow it. The question is found in the Rental interview. (See the attached screenshot below. Click to enlarge.)

Qualifications.   You qualified as a real estate professional for the year if you met both of the following requirements.

• More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.
• You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.

Don’t count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest.

  If you file a joint return, don’t count your spouse's personal services to determine whether you met the preceding requirements. However, you can count your spouse's participation in an activity in determining if you materially participated.

Real property trades or businesses.   A real property trade or business is a trade or business that does any of the following with real property.

• Develops or redevelops it.
• Constructs or reconstructs it.
• Acquires it.
• Converts it.
• Rents or leases it.
• Operates or manages it.
• Brokers it.

[sfmike]

I believe I will meet the RE professional test in 2021, and have a couple of questions:

• To test the effect, I went back to my 2020 TurboTax return and checked both boxes for our real estate business (More than 750 hours/more than 50% of work-related time). However that didn't change my taxes at all despite showing a substantial loss. Why wouldn't that allow me to deduct the loss? (I'm just trying to see the impact since I worked fulltime in 2020)
  
  
• Also if I qualify am I allowed to deduct all rolled over losses from previous years?

Thanks for any guidance.

[Critter-3]

@sfmike 

The "real estate business"  ...  which form is it being reported on ?   Sch C ? 

[sfmike]

My Turbo Tax reports it on Schedule E, including passive suspended losses from prior years.  I also have a consulting business which is reported on Schedule C.

A little research and I see the wisdom of your question. Do I have this right:

• In order to get the RE professional treatment, I must report the business on Schedule C
• Of course I have to pass the 750 hours/50% thresholds
• In this case, I could offset my income from consulting with the rental losses

If I did qualify, would I be able to deduct prior year losses as captured on Schedule E?

Thank you.

[Critter-3]

Ok ... so you don't have a BUSINESS  renting real estate where you pay SE taxes on the profits ... NO Sch C.   

You have passive rentals reported on a Sch E and if you are now a real estate professional on the Sch E then the losses should be allowed and not be subject to the passive loss limitations on the form 8582.   This may not release prior year passive losses. 

[sfmike]

That's where I started this thread confused - I check both boxes to qualify as an RE professional (hours and percent) but it doesn't change my taxes at all. We are over the income limit for the $25k deduction. 

Courtesy of Nolo: "landlords who qualify as real estate professionals may deduct any amount of losses from their other non-passive income."

So why would that election have no impact on my taxes?

[Critter-3]

Trying to advise you in the blind in a public forum is impossible. 

 

Contact TurboTax support and speak directly with a TurboTax support agent concerning this situation.

See this TurboTax support FAQ for a contact link and hours of operation -https://ttlc.intuit.com/questions/1899263-what-is-the-turbotax-phone-number

[AmeliesUncle]

---

@sfmike wrote:

• To test the effect, I went back to my 2020 TurboTax return and checked both boxes for our real estate business (More than 750 hours/more than 50% of work-related time). However that didn't change my taxes at all despite showing a substantial loss. Why wouldn't that allow me to deduct the loss? (I'm just trying to see the impact since I worked fulltime in 2020)

---

That is the FIRST half of qualifying.  The SECOND half is that you must "Materially Participate" in each rental.  So you need to go into EACH rental property to indicate if you "Materially Participate" or not.

[sfmike]

Thanks - that was what I was looking for!