A Mortgage Broker is not Engaged in a Real Property Trade or Business

In a recent Chief Counsel Advice memorandum (CCA 201504010), the IRS concluded that mortgage brokers are not engaged in a real property trade or business for the purpose of qualifying as real estate professionals.  Real property trades or businesses are defined in the Internal Revenue Code to be “real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental operation, management leasing, or brokerage trade or business.” (I.R.C. § 469(c)(7)(C))

Taxpayers who qualify as real estate professionals are given an exception to the general rule that all rental activities are passive activities (and thus subject to passive loss limitations.)  A real estate professional is one who (1) performs more than half of his/her personal services in real property trade or businesses in which he/she materially participate, […]