Documentation Matters For Real Estate Professional Exception

Most people would think that a dentist would not qualify as a real estate professional who is allowed to deduct rental real estate losses. The IRS thought the same thing. Fortunately for one dentist who also operated a real estate business, the U.S. Tax Court found that he did indeed qualify for the real estate professional exception, based largely on his extensive documentation of the hours he had spent.

Real estate professional exception and material participation defined

The IRS defines material participation as regular, continuous and substantial involvement in business operations. The material participation requirement is satisfied if you meet any one of seven tests. In the case of a joint tax return, the couple meets the requirements if either spouse separately satisfies them.