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Note: this page is about the Minnesota Real Estate Professional
For federal Real Estate Professional, or the Real Estate Professional in another state, click here.
2021
Minnesota
Real Estate Professional
Choose an applicable year
2022
|
2021
Overview
Real estate professional qualification, as defined by I.R.C. §469, are not subject to the passive activity rules and loss limitations.
Conformity Type:Static Conformity
Commonly referred to as Section 469 and Passive Activity Loss
Strategy Details
Related Resources
Overview
Real estate professional qualification, as defined by I.R.C. §469, are not subject to the passive activity rules and loss limitations.
Conformity Type:Static Conformity
Commonly referred to as Section 469 and Passive Activity Loss
Do I Qualify for the Real Estate Professional?
If you qualify as a real estate professional, your real estate investments will not be subject to the passive activity loss rules, meaning you can use real estate losses to offset and reduce your taxable income.
2021
Minnesota Real Estate Professional Details
Individuals and businesses that meet the requirements for the real estate professional qualifiation can realize substantial benefits from real estate properties. The real estate professional designation means that passive activity rules do not apply. Some examples are the following:
- Special $25,000 allowance does not apply, meaning there is no cap on passive losses that can be applied to nonpassive income
- AGI and filing status limitations do not apply
To qualify for these benefits, requirements must be met. Below are key requirements:
1. Material participation in real property trade or business trhough personal services greater than 50% of total services
2. Qualifying personal services must be greater than 750 hours in a given year
3. Taxpayer owns 5% or more of a closely held corporations or personal service corporation
Material participation must be established separately for each rental activity or the total be aggregated together to meet real estate professional requirements. In other words, if a rental activity has passive losses, but material participation may not meet the 2 listed rules, then all rental activities can be combined in order to claim the passive losses against nonpassive income without limitation.
The real estate professional designation also prevents rental activities from being subject to self employment tax and the net investment income tax, further increasing tax savings for some taxpayers.
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Benefits
Reduces taxable income
Eliminates passive loss limitations
Considerations
You must document your hours worked as a real estate professional
May increase the chance of an audit, particularly if you work other jobs
Assumptions When Taking the Real Estate Professional
N/A
Requirements to Claim the Real Estate Professional
To be considered a real estate professional, each tax year, you must meet the following two requirements:
More than 50% of the personal services you perform in all businesses during the year must be performed in a real estate business in which you materially participate.
You must work at least 750 hours in a real estate trade or business.
Business Entities That Can Claim the Real Estate Professional
Schedule E
Farm Rental
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All State-Level 2021 Real Estate Professional Details
See the federal level strategy here.
To learn more about how the Real Estate Professional is calculated in each state, click on your state below.
States with Real Estate Professional
Arizona
Alabama
Alaska
Arkansas
Colorado
Connecticut
District of Columbia
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
New Hampshire
New Mexico
New York
North Carolina
North Dakota
Oklahoma
Pennsylvania
Rhode Island
South Carolina
Tennessee
Utah
Vermont
Virginia
West Virginia
Wisconsin
Stay tuned for more information on these states in the future.
California
Kentucky
Nevada
New Jersey
Ohio
Oregon
South Dakota
Texas
Washington
Wyoming
Additional Tax Strategies You May Qualify For
Those who typically qualify for the Real Estate Professional could also save money in taxes by using the following additional tax planning strategies:
Passive Real Estate Losses
Certain passive losses can offset ordinary income.
Conservation Easements (Individual)
Agree to permanent limits on the use of your land & get a tax deduction
1031 Exchange
Purchase real estate using the proceeds from another investment property
See All Strategies
The material discussed on this page is meant for general illustration and/or informational purposes only and is not to be construed as investment, tax, or legal advice. You must exercise your own independent professional judgment, recognizing that advice should not be based on unreasonable factual or legal assumptions or unreasonably rely upon representations of the client or others. Further, any advice you provide in connection with tax return preparation must comply in full with the requirements of IRS Circular 230.
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