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Old 02-10-2013, 08:31 PM
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new real estate professional

HELP! I've just entered the business of building and managing residential properties. On July 1st 2012 I converted my primary residence to rental and then invested 125k building an additional rental on the lot have a nice positive NOI and some (~100k) of W2 income for the next several years. I'm just getting to know Schedule E. Assuming I qualify as an active RE business (more than 750 hours and so forth) I'd really like to know what benefits that will bring over the next several years. Let's get something off the chest - I am using Turbo Tax (yikes!) and I wonder if it is too dull a tool. Maybe I'm not understanding the IRS publications? What good does it do to qualify for the special passive activity rules, broadly speaking? If I give up on this business next year, what are the risks/rewards, generally? I have at least one more residential project in the works.... but when I finished the Tubotax process and then (experimentally) told the software that I DID NOT meet the rules to be an RE professional my tax refund didn't change. The bottom line question is: how does that RE status really bring a benefit - only in years to come?



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Old 02-18-2013, 05:50 PM
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“HELP! I've just entered the business of building and managing residential properties. On July 1st 2012 I converted my primary residence to rental and then invested 125k building an additional rental on the lot have a nice positive NOI and some (~100k) of W2 income for the next several years. I'm just getting to know Schedule E. Assuming I qualify as an active RE business (more than 750 hours and so forth) I'd really like to know what benefits that will bring over the next several years.”=============> Active rental property owners generally get more favorable tax treatment than do passive investors.As a passive investor you will be limited on what you can deduct from any losses you may incur. Passive losses can generally only be deducted from passive income. Presently you're limited to $3K of passive losses that can be deducted from your other active income,i..e., W2 income. However, if you actively participate in activity associated with the rental real estate, you may qualify to deduct the rental real-estate losses. If your MAGI is less than $100K, you can deduct up to $25K in losses when you perform landlord tasks on a regular basis. When your MAGI is between $100K and $150K, the $25K deduction decreases by $1 for every $2 over $100K. This deduction phases out at $150K.

“ Let's get something off the chest - I am using Turbo Tax (yikes!) and I wonder if it is too dull a tool. Maybe I'm not understanding the IRS publications? What good does it do to qualify for the special passive activity rules, broadly speaking?”=======>As described above.


“ If I give up on this business next year, what are the risks/rewards, generally?”===========>I assume that you sell the pty(by giving up on this biz)Then as long as you reconvert he rental pty converted to rental, The IRS allows you to exclude up to $250K of the profits made on the sale of your homes if you used the property for at least two of the last five years prior to the sale. Your home must be your main home and you must not have sold another property within the last two years without paying taxes. Married taxpayers may exclude up to $500K when filing joint tax returns.However, you who used your property for both personal use or rental use may exclude the gain made on your home if the rental is located within the home. For instance, if the you sell property used as your main home, but rented one room of the home, then you can exclude the gains from the sale. However, if your rental is in an adjoining home or duplex, then the gain is taxable, and you must report the profit amounts on Form 4797 dividing the business use from non-business use portions of the home. At this time, on the sale of the pty you also need to recapture unrecap depre taken previously as our ordinary income taxed at 25%.If you have held a property less than one year, your capital gain is classified as short-term. Short-term capital gains are subject to taxation at the same rate as ordinary income. Because, as shown in the Urban Institute study, relatively wealthy taxpayers make use of most capital gains reported, tax law promotes holding rental property and other business assets at least one year.


“ I have at least one more residential project in the works.... but when I finished the Tubotax process and then (experimentally) told the software that I DID NOT meet the rules to be an RE professional my tax refund didn't change. “===========>I am not familiar with the TT software, yo may contact the tax software vendor for tech advice/help
“The bottom line question is: how does that RE status really bring a benefit - only in years to come?”====>I guess u need to contact a r/e pro to get some more accuarate professional advice/help on this issue.



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