It’s that taxing time of year, so break out your pencils and start sweating.
If you’re a real estate investor, it’s easy to run afoul of the complicated IRS tax laws. To start with, if you own investment real estate, you first have to figure out which category of real estate investor you fit into:
- Active Real Estate Professionals make the decisions about buying, selling, and leasing their investment real estate. The IRS says active real estate professionals spend more than 50 percent of their work life actively engaged in the business of buying, selling and managing your properties, which has to amount to at least 750 hours per year.
- Passive Real Estate Investors contribute money to the purchase or upkeep of the property but don’t participate in the day-to-day property management. Passive investors are limited to $25,000 in losses due to their real estate.
If you decide that you’re an active real estate professional, the IRS then asks you to make a choice between whether you’re a flipper or a long-term investor.
The IRS considers you to be a flipper if you buy and sell real estate properties frequently. What’s the magic number?
As April 15 approaches, MoneyWatch is publishing daily tax tips. Please check back frequently for the latest advice from our experts.