As defined by the IRS , to qualify as a real estate professional, you must meet BOTH of the following two criteria:
* First, more than half of the personal services you provide (that is, at least half of your work hours) for the tax year must be in a real property trade or business (including rental real estate activities). If you are an employee in a real estate-related business, your activities count only if you own more than 5% of the business.
* Secondly, you must work more than 750 hours during the tax year in a real property trade or business.
And what counts as a “real property trade or business”? The IRS’s definition is very broad: A real property trade or business is any business that develops or redevelops, constructs or reconstructs, acquires, converts, rents or leases, manages, or brokers real estate. Your activities overseeing your own rental real estate count toward the real estate professional status.
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Two Tests:
More than half of the time you spend performing personal services in ALL trades or businesses is spent in "qualified real estate activities."
-AND-
More than 750 hours a year are spent in qualified real estate activities in which you materially participated. *
* Materially participated means any ONE of the following PER EACH PROPERTY UNLESS YOU ELECT TO AGGREGATE THEM.
Worked more than 500 hours on the property during the tax year OR
Your participation for the tax year equals substantially all of the participation including non-owners OR
Worked more than 100 hours AND that is equal to or greater than anyone else OR
Qualified as above for any five out of ten past years.
