real estate professional – Bregante+Company LLP

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, […]

Tax Court Rules that a Trust can be a Real Estate Professional

Real estate activities are normally considered passive activities subject to passive loss limitations, unless a taxpayer qualifies for the real estate professional exception. To meet this exception, 1) more than one-half of the taxpayer’s personal services must be in real-property activities in which the taxpayer materially participates, and 2) these real-property personal services must be more than 750 hours.

The IRS has taken the hard stance that trusts cannot qualify for this exception, because “personal services” are defined to be “work performed by an individual in connection with a trade or business (Treas. Reg. § 1.469-9(b)(4)). Since trusts are not individuals, the IRS argues, trusts cannot perform personal services.

In Frank Aragona Trust, the Tax Court disagreed with the IRS’ position. The court noted […]