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MEET CURT, OWNER OF PRIVATE CAR STORAGE My Best Business!
AUDIT-PROOF YOUR TIME SPENT ON RENTAL PROPERTIES
If you claim status as a tax-law-defined real estate professional who can deduct his or her rental property losses, your time record for the year must prove that you spent 1. more than one-half of your personal service time in real property trades or businesses in which you materially participate, and 2. more than 750 hours of your personal and investor services time in real property trades or businesses in which you materially participate. If you are married, either you or your spouse must individually qualify as a real estate professional. If one spouse qualifies, both spouses qualify. Achieving real estate professional status is the first of two steps. You face one additional hurdle: To deduct tax losses on a rental, you also must prove that you materially participated in the rental activity. If you are married, you and your spouse may count your joint efforts toward passing the material participation tests. Most of the tests for material participation are based on hours worked.
In the line of work that I do, I have the opportunity to meet clients from a variety of professional fields. While I enjoy working with every single one of them, in my experience, the clients who seem to enjoy their careers the most are the ones who have found a way to bring their personal and professional lives together — the ones who turned their passions and hobbies into a job. Curt Autenrieth, the owner of Private Car Storage, is a phenomenal example of this type of client. Prior to creating Private Car Storage, Curt was a ticket broker in the resale market. Before popular websites like Craigslist, eBay, or StubHub gained traction, individual ticket brokers’ businesses soared. I specifically recall working with Curt while I was attending USC, where I sold him my tickets to the Rose Bowl. But once the internet became a necessity in people’s everyday lives, online resale companies turned everyone into amateur ticket brokers, which caused the real brokers like Curt to seek business elsewhere. Once Curt noticed the ways in which the new technology was causing a major downshift in his industry, he knew he needed to carve out a different path. One of Curt’s passions is buying and selling Porsches. In fact, he has over a dozen cars now! But he was running out of room for them at his own house, so he leased a warehouse where he could store them and offered to store some of his friends’ cars there as well. As they say, the rest is history! Now he has five different locations and stores over $100 million worth of cars with state-of-the-art 24-hour surveillance technology and controlled access. Curt is a particularly noteworthy client not only because he is a truly successful entrepreneur, but because he was the very first client I ever had. Since we started working together several decades ago, I’ve always been impressed with Curt’s unique story, his ability to identify such an important shift in the market, and the awesome way that he turned his passion into a profit! If you need any tickets or cars stored, call Curt at 626.577.3939.
WHAT DOES THIS MEAN TO YOU?
Keep a time log! In an audit of your real estate activity, the IRS tells its examiner to do the following:
Request and closely examine the taxpayer’s documentation regarding time. The taxpayer is required under Reg. Section 1.469-5T(f)(4) to provide proof of services performed and [of] the hours attributable to those services. If you don’t have what the IRS wants, your odds of winning your rental property tax-loss deductions are slim. And don’t think you can create this log after the fact. Nearly everyone who spends the considerable time it takes to jump through the hoops to create an after-the-fact log of hours using the IRS spreadsheets loses the deductions.
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