UNLIMITED DEDUCTIONS FOR REALTY PROS.
"Real Estate Professionals" can claim unlimited property-loss deductions from their other ordinary taxable income. If you spend at least 750 hours per year (about 14 hours per week) on your real estate activities, you may qualify for unlimited Schedule E deductions from your rental houses and other realty investments.
A real estate sales license is not required. Full-time real estate investors, property managers, builders, contractors and leasing agents can qualify. Either spouse is eligible.
For example, suppose a married lawyer earns $300,000 AGI. He would normally not be entitled to any Schedule E tax loss deduction from his rental houses because his AGI exceeds $150,000. However, if his wife manages their properties and she spends more than 750 hours annually supervising those investments, making management decisions, inspecting properties for possible purchase, and supervising sales and exchanges of their properties, they can qualify for unlimited "real estate professional" deductions on their joint income tax returns.
AVOID TAX WHEN SELLING YOUR RENTAL HOUSES.
If you quickly buy and sell rental houses or other real estate after fewer than 12 months of ownership (called "flippers"), your capital gains will be taxed at ordinary income tax rates up to 35 percent plus state taxes.
However, if you own the property more than 12 months, then the maximum federal capital gain tax rate is currently only 15 percent, plus state taxes.
But various tax-avoidance methods are available to cut or eliminate these taxes. In addition to the principal-residence-sale tax exemption of Internal Revenue Code 121 (if the house was owner-occupied to meet the statute's requirements), tax-avoidance consideration should be given to tax-deferred exchanges and installment sales.
Also, remember that any unused annual property-tax losses from rental properties are "suspended" for use in future tax years or when a property is sold. Your tax adviser can provide full details.
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