Taylor-Brown Real Estate Talks

Thank you for revisiting you can still subscribe to my RSS feed. As Always Thank You for visiting!

Image via Wikipedia

The IRS made changes to the tax that will affect 2007 tax returns if the investor claims a loss. In addition, just reporting a loss may cause your taxes to be audited.

The new law has to do with the real estate investor classification. The investor can be classified as a real estate professional. Under the new law, the investor qualifies as a professional, regardless if licensed real estate agent or broker by working at least 750 hours on real estate activities. The IRS considers real estate activities to be renting, leasing, converting, operating, developing, redeveloping, managing, constructing, and acquiring of real estate.

In addition, as a real estate investor you are limited on your deduction to your passive income in the amount of $25,000. That amount decreases as your passive income increases and tops $100,000. Still yet, the eligibility for the deduction disappears as your income goes over $150,000.

The reason this change came about was due to the increase in number of investors during the market “boom”.

The ramification of these modifications to the tax law hit the investor who works a full time W2 job the hardest. Remember, the losses can only be taken on passive income.

However, under that same law there are two classifications for passive losses. There is material participating passive loss and passive loss.

The material participating rule requires that the investor work on each property for 500 hours. The work can be any or all the qualifying activities listed above. The investor can also opt to combine all properties under one 500 hour block, but the election must be made at the beginning of the tax year.

Another tax law change is that in the designation of a limited partnership’s interest. The properties owned and/or held under this entity is no longer considered material participating, so are not eligible for the deduction if there is a loss.

It is important to note that no longer can research of potential properties that the investor is considering adding to his or her portfolio a valid passive activity.

Keeping accurate records is crucial. The investor needs to keep date, time, location, and activities and in some cases it may be helpful to have photos to show evidence.

The changes mention above came out in December of 2007 and are retroactive to 2007 and may be earlier tax returns. Have your accountant review your current and previous returns to make sure you are in compliance.

Related Real Estate Investing Articles

• Help Offered for Indirect Investors With Madoff (nytimes.com)
• House Flipping Makes a Comeback (online.wsj.com)
• Homebuyer Tax Credit Provides Incentives for Buyers Says Elika Associates (prweb.com)

Originally posted 2009-01-01 22:53:35. Republished by Blog Post Promoter

• Interview with Attorney Siegel on "The New Rules for Mortgages" Dale Robyn Siegel is a licensed attorney in New York and owner of Circle Mortgage Group, a boutique mortgage broker in Westchester, New York. She is an adjunct professor at Baruch College as well as NYU Schack Institute of Real Estate. She is currently on a mission to re-educate......
• Tax Time is Here Tax time is almost here, and I thought some helpful information was needed to help with tax preparation.  Recently, I found an article on The 11 Most Overlooked Tax Deductions. In these trying times, I do not think any of us want to overlook anything dealing with money so enjoy the article by......
• Common Myths about Foreclosure The myths that people believe will save their homes from foreclosure are: ignoring it investors listing with a realtor filing bankruptcy refinancing Myth 1 Ignoring the problem Ignoring the problem is definitely not the way to handle the dilemma of foreclosure.  Ignoring increases the chance of the homeowner getting thrown......
• Get Your Copy of "Should I Short Sale My Home"           Click this link http://www.lulu.com/content/paperback/shouldisalemyhome/6381193 From: The Desk of Serena Brown, 4:33pm   If you are interested in selling your home using a short sale then learning an effective and efficient way to accomplish that goal is a much needed skill.   The single biggest complaint......
• Protecting Your Investments In order to protect your real estate investment, you must understand the tax tribulations that can be encountered.  You must first decide on the type of entity that you would like to form.  Forming one or more of these entities listed below will protect your individual personal assets, so review this carefully and consult an attorney if......

• More Ideas For Work at Home Jobs I have been online for a little while now and have often dreamed about quitting my day job and making...
• How the new tax laws for 2007/08 could affect you. With tax time for 2006 right around the corner, I thought it might be a good time to revisit an...
• Should I Blog Full-time? My recent lay-off has forced me to think about the future and how I want to live my life down...
• Passive Income Idea With A Spin Most would agree that diversification plays a big role in the success of one's personal finances. Spreading out risk is...
• How to Manage Your Time With a Corporate Blog Running a corporate blog can be quite time consuming, especially if you are new to blogging. Here’s a brief idea...