RENT Magazine Q4'23

As you may know, real estate taxation is mostly governed around court cases and a mish mash of revenue rulings, regulations, and other common/best practices. However, one area of tax law is actually statutory (an actual law passed by Congress). Among these tax laws, the "Real Estate Professional" (REP) exception under IRC 469(c)(7) stands as an essential tool. But for those located in the Golden State, another layer of complexity is introduced due to California's distinctive nonconformity to certain federal tax laws. TREAD CAREFULLY: THE REAL ESTATE TAX DEDUCTION MINEFIELD (REAL ESTATE PROFESSIONAL)

REP: NOT JUST ANOTHER TAX PERK The REP exception, under IRC 469(c)(7), isn't a casual nod from the taxman. It’s an engraved invitation to the elite club of federal tax deductions. With it, savvy real estate professionals can pivot their rental actions from "just another passive activity," which would be subject to passive activity loss rules, to "look at me, I'm active!"

With the right maneuvers, this could mean offsetting losses against a plethora of income types. But here's the catch: that coveted invite isn't for everyone. Proving you're on the list requires more than just a declaration.


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