The passive activity loss rules are often a major roadblock for
taxpayers involved in rental activities. One recent case,
Stanley v. U.S. (W.D. Ark. 2015), however, demonstrates
how work done as an employee can help qualify a taxpayer for the
benefits of the real estate professional exception.
Exception Explained
Rental real estate activities are generally considered passive,
so rental losses can offset only passive income. Internal Revenue
Code Section 469, however, grants an exception for a taxpayer who
is a real estate professional and materially participates in the
activity. To qualify as a real estate professional, you must
satisfy these two requirements: 1) More than 50% of the
"personal services" you perform in trades or businesses
are performed in real property trades or businesses in which you
materially participate, and 2) you perform more than 750 hours of
services in real property trades or businesses in which you
materially participate.
