For those of you are are ‘real estate professionals’ for IRS tax purposes (which means you get a much greater ability to deduct expenses) then check out this article about a recent Tax Court case where a landlord who personally managed and owned 28 residential properties lost when challenged by the IRS. A great primer on the ‘real estate tax professional’ classification. The key test is whether you commit more than 51% of your time in your rental business.
There are two requirements to be a real estate professional: 1 you or your spouse, if you file a joint return must work at least 750 hours per year in real estate businesses, and 2 you or your spouse, if you file a joint return must spend over half 51 percent of your total working hours during the year working in one or more real property businesses. In addition, you must “materially participate” in your rental activity to qualify. This requires that you work a certain number of hours at your rental activity during the year For example, you would materially participate if you work at least 500 hours during the year at the activity. You can qualify in other ways as well.