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Real Estate Professional Tax Status: Electing Aggregation, Meeting the Material Participation Test, Avoiding NIIT

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Friday, August 16, 2024

Recorded event now available

or call 1-800-926-7926

This course will explain the criteria that must be met for a taxpayer to be considered a real estate professional. Our panel of real estate taxation experts will discuss how real estate professionals meet the material participation tests and the advantages and drawbacks of this designation.

Description

Qualifying as a real estate professional and meeting the material participation guidelines can allow taxpayers to avoid rental income or loss classification as passive. Passive losses are often suspended, waiting for either offsetting passive income or the disposition of the property itself. Passive income can be troublesome, subjecting certain taxpayers to the additional 3.8 percent net investment income tax (NIIT).

Taxpayers often have several rental activities. Each separate rental activity must meet the material participation rules for real estate professionals unless an election is made under Reg. Sect. 1.469-9(g), allowing real estate activities to be aggregated. The election, however, is binding until specific requirements are met and the election is revoked. Aggregating rental activities can also affect future loss deductions of individual properties within the group.

Tax professionals working with a rental real estate business need to understand both the benefits and the caveats of the real estate professional designation. The panel will address when rental property qualifies as a trade or business, considerations before electing to aggregate rental activities, and the requirements to meet the safe harbor under Section 1411 to avoid NIIT.

Listen as our panel of real estate taxation experts discusses how real estate professionals meet the material participation tests and the advantages and drawbacks of this designation. This webinar will explain the criteria that must be met for a taxpayer to be considered a real estate professional.

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Outline

  1. Real estate professionals
    1. Passive vs. non-passive losses
    2. Criteria
  2. Material participation
    1. Criteria
    2. NIIT
  3. Trade or business income
    1. Criteria
    2. 199A
  4. Aggregation
    1. Making the election
    2. Revocation
    3. Retroactive application
    4. Deducting suspended and disposition losses
  5. Other considerations

Benefits

The panel will review these and other critical issues:

  • Electing to aggregate real estate activities under Regulation Section 1.469-9(g)
  • What constitutes a real estate trade or business?
  • Revoking the aggregation election
  • Meeting the material participation test
  • When is rental real estate subject to NIIT?
  • When does real estate qualify for the 199A deduction?

Faculty

Lovett, Brian
Brian T. Lovett, CPA, JD
Partner
Withum Smith+Brown

Mr. Lovett has extensive experience serving the tax needs of both public companies and closely-held businesses,...  |  Read More

Palovick, Sara
Sara A. Palovick, CPA
Tax Partner
Withum Smith+Brown

Ms. Palovick specializates in real estate, and focuses most of her time in the areas of partnership and individual...  |  Read More

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