Mid Atlantic Real Estate Journal — NJAA Conference & Expo — May 10 - 23, 2013 — 13D
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NJAA C onference & E xpo
By Brian T. Lovett, CPA, JD, WithumSmith+Brown Real Estate Professionals - The IRS simplifies available relief
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or individuals with investments in real estate, qualification as
lows qualifying taxpayers to retroactively aggregate real estate activities. In order to qualify under Rev. Proc. 2011-34, a taxpayer must meet the following require- ments: 1. The taxpayer failed to make an election under §1.469-9(g) solely because the taxpayer failed to timely meet the requirements in §1.469-9(g); 2. The taxpayer filed consis- tently with having made a timely election under §1.469- 9(g) on any return that would have been affected if the tax-
payer had timely made the election; 3. The taxpayer has timely filed each return that would have been affected by a time- ly filed election; and 4. The taxpayer has reason- able cause for its failure to timely meet the require- ments of §1.469-9(g). Taxpayers who meet these requirements may attach the statement required by §1.469-9(g) to an amended return for the most recent tax year. The statement must contain all of the in-
formation required under §1.469-9(g) and must ex- plain the reason for the fail- ure to file a timely election. Last, the statement should identify the taxable year for which it seeks to make the late election. Since the election required by §1.469-9(g) is the differ- ence for many taxpayers between qualifying and not qualifying as a real estate professional, the late elec- tion relief provided by Rev. Proc. 2011-34 is a welcome opportunity. Taxpayers re-
quiring late relief for failure to timely file the §1.469-9(g) election should capitalize on the chance to make the election retroactively with- out the cost and burden of a ruling request. Brian T. Lovett , of WithumSmith+Brown, focuses his practice on all aspects of tax com- pliance for real estate entrepreneurs and regu- larly advises clients with respect to the tax con- sequences of potential transactions. n
a real estate professional can resul t in favorable tax conse- quences. W h i l e losses from real estate activities are
Brian T. Lovett
passive per se, the losses of a real estate professional are considered ordinary losses available to offset other or- dinary income. In order to qualify as a real estate professional, a taxpay- er must pass both tests of In- ternal Revenue Code Section 469(c)(7)(B). First, more than one half of the overall person- al service hours performed by the taxpayer in the tax year must be performed in real estate trades or businesses in which the taxpayer mate- rially participates. Second, the taxpayer must performat least 750 hours in real estate trades or businesses in which that taxpayer materially participates. For purposes of the second test, the IRS looks at each real estate activity separately. A taxpayer would only qualify as a real estate professional for real estate activities in which they per- form more than 750 hours during the tax year. A solution for a taxpayer trying to qualify as a real estate professional lies in a special election available to taxpayers under Regula- tion Section 1.469-9(g). This regulation allows a taxpayer to aggregate all real estate activities into one activity. After aggregation, a taxpay- er must perform 750 hours across the grouped activities. This election may be made in any year in which the taxpayer qualifies as a real estate professional and must be made on an originally filed tax return. If this election is not timely filed, a taxpayer must request a ruling for late relief under §301.9100-3 and pay a user fee. Revenue Procedure 2011- 34, issued in May 2011, simplifies the process of requesting late relief to file a §1.469-9(g) election and al-
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