The IRS has specific criteria for what constitutes a real estate professional for tax purposes. One of the key requirements is that you must spend a certain amount of time participating in real estate activities. But what types of hours count towards this requirement? Here’s a breakdown:
Direct Management Activities
This includes time spent on activities such as collecting rent, negotiating leases, or managing the property.
Maintenance and Repairs
Time spent maintaining and repairing the property counts towards the requirement. This could include activities like fixing a broken appliance, painting, or landscaping.
Tenant Relations
Time spent communicating with tenants, resolving disputes, or showing the property to prospective tenants can be included.
Financial Operations
This includes time spent on activities such as paying bills, budgeting for the property, or filing taxes related to the property.
Property Improvement
Time spent on significant property improvements can be included. This could involve activities like renovating a unit, adding a new feature to the property, or overseeing a major repair project.
Preparing and Negotiating Leases
Time spent preparing leases for new tenants or negotiating lease renewals with existing tenants counts towards the requirement. This includes drafting the lease agreement, discussing terms with tenants, and finalizing the lease.
Writing and Placing Rental Ads
Time spent on marketing your rental property, such as writing and placing rental ads, counts towards the requirement. This includes time spent on creating the ad, selecting where to place it, and responding to inquiries from the ad.
Hiring and Supervising a Property Manager
If you hire a property manager to help manage your rental property, the time you spend on hiring and supervising them counts towards the requirement. This includes time spent on activities such as interviewing potential managers, discussing their duties, and overseeing their work.
Inspecting the Property
Time spent inspecting your rental property counts towards the requirement. This includes regular inspections to ensure the property is in good condition, as well as inspections to assess needed repairs or improvements.
Collecting Rents
Time spent on collecting rent from tenants counts towards the requirement. This includes activities such as sending rent reminders, processing payments, and handling late or missed payments.
Evicting Tenants
If you need to evict a tenant, the time you spend on the eviction process counts towards the requirement. This includes activities such as serving the eviction notice, attending court hearings, and coordinating with law enforcement to carry out the eviction.
Traveling to Your Rentals
Time spent traveling to your rental properties counts towards the requirement, as long as there is a business reason for the trip. This could include trips to inspect the property, meet with tenants, or oversee repairs or improvements.
Remember, the IRS requires that you spend more than half of your working hours and over 750 hours per year participating in real estate activities to qualify as a real estate professional. It’s important to keep detailed records of your time spent on these activities to substantiate your claim if needed.
Please note that this list is not exhaustive, and the specifics of your situation may vary. Always consult with a tax professional to understand how these rules apply to you.
