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 […]