10B — February 10 - 23, 2012 — 2012 IREM ® Tri-State Conference & Expo — Property Management — Mid Atlantic Real Estate Journal www.marejournal.com 2012 IREM ® T RI -S TATE C ONFERENCE & E XPO
By Karen Schirmacher, CPA, MST, Wilkin & Guttenplan, P.C., CPAs Maximizing the Income Tax Benefit from Rental Losses erating losses for income tax purposes.
T
he real estate indus- try – it’s your passion – it’s your livelihood.
gent treatment is that a “quali- fying real estate professional” may not be subject to the passive-loss rules. A “qualify- ing real estate professional” is one who works at least 750 hours during the year in real property trades or businesses and who spends more than half their total time work- ing in real property trades or businesses in which they materially participate. An individual only involved in rental real estate may have a difficult time meeting these criteria due to the fact that each rental property is treat-
ed as a separate activity for which material participation must be met in order to fall outside the passive loss rules. There are seven different ways material participation can be met and as long as one of the seven tests is met the activity will not be treated as passive. Some of the tests are based on the number of hours spent by the owner during the year while others compare the owner’s involvement to that of non-owners. While it may seem impossi- ble for a rental property owner to qualify as a real estate
professional, there is a special tax election that may be made whereby all rental activities can be aggregated and treated as one combined activity. An advantage to making this election is that the individual need only demonstrate that they materially participated in the combined rental activity as opposed to each separate activity. This election may enable an individual to meet the definition of a qualifying real estate professional who will then be able to offset their nonpassive income with their rental losses. While this out- come is desirable, there may be disadvantages to making this election. The pros and cons of making the election should be evaluated because once made, it is irrevocable. Individuals have until the due date of their tax return to make the election. You should have your professional tax advisors help you navigate these complex rules to ensure that you maximizing your tax benefits. Karen Schi rmacher, CPA, MST is a principal at Wilkin & Guttenplan, P.C., CPAs. ■ WASHINGTON, DC — The 12th annual Leadership and Legislative Summit of the Institute of Real Estate Management (IREM) will be held from April 14 through 18 at the JW Marriott Ho- tel in Washington, DC. The Summit brings together real estate management indus- try leaders in a dynamic, highly interactive forum that addresses major business challenges and opportuni- ties presented by these ever- changing times, emerging legislative issues of industry interest, IREM governance- related matters, and much more. Highlighting the event is Capitol Hill Visit Day, when IREM members meet with members of Congress and their key aides to promote awareness and understand- ing of key legislative issues of concern to the commercial real estate industry and to communicate the industry’s position on these issues. ■ Capitol Hill visit day to highlight key commercial real estate issues
Provisions in the current federal tax law may prevent rental property owners from deducting operating losses generated by those properties unless certain requirements are met. These provisions, referred to as the passive loss rules, state that unless an individual “materially par- ticipates” in the rental activity, losses generated by the activ- ity cannot be used to offset nonpassive income such as wages, interest, pension ben- efits, and other types. An exception to this strin-
Whether you are a prop- e r t y man - ager, broker, developer, or operator, it is likely that you consider your s e l f a
Karen Schirmacher
r e a l e s - tate pro-
fessional. Many real estate professionals also own rental properties. While such prop- erties may generate positive cash flow, they are likely gen-
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