The Internal Revenue Service is paying close attention to the definition of “Real Estate Professional” when it reviews tax returns. Under the IRS Code and Regulations, real estate professionals are defined as those who spend 750 hours or more annually handling real estate-related activities.
Real estate professionals with property investments cannot record more than $25,000 in losses against their real estate income if they earn less than $100,000 and no losses at all are permitted if they earn more than $150,000. However, there are no limits to taking real estate losses against other forms of income.
Given that the IRS definition of real estate activity requires “brokering” property sales, purchases, or leases, two cases in California reveal auditors declaring that real estate agents are not real estate professionals.