I want to present to you a part of the preamble to the proposed
regulation relating to real estate professionals in order to show why
this subject area is a mine field. The below reference to Section 1411
is a reference to that part of the Act that creates the additional taxes
(2) Real Estate Professionals
Section 469(c)(7) and Sec. 1.469-9 provide special rules for
certain individual taxpayers involved in the conduct of real property
trades or businesses (real estate professionals). If a taxpayer meets
the requirements to be a real estate professional in section
469(c)(7)(B), the taxpayer's interests in rental real estate are no
longer subject to section 469(c)(2), and the rental real estate
activities of the taxpayer will not be passive activities if the
taxpayer materially participates in each of those activities. However,
a taxpayer who qualifies as a real estate professional is not
necessarily engaged in a trade or business (within the meaning of
section 162) with respect to the rental real estate activities. If the
rental real estate activities are section 162 trades or businesses, the
rules in section 469(c)(7) and Sec. 1.469-9 will apply in determining
whether a rental real estate activity of a real estate professional is
a passive activity for purposes of section 1411(c)(2)(A). However, if
the rental real estate activities of the real estate professional are
not section 162 trades or businesses, the gross income from rents
derived from such activity will not be excluded under section
1411(c)(1)(A)(i) by the ordinary course of a trade or business
exception. The ordinary course of a trade or business exception is
inapplicable because the rents are not derived from a trade or business
and will therefore be subject to section 1411. The ordinary course of a
trade or business exception is described in part 5.A.vi of this preamble.
yes. I know a couple folks who should qualify. They will start keeping
contemporaneous time records starting January 1, and plan to file a
declaration regarding aggregating their rentals with their 2013 tax return.
Of course, they will be watching for further developments until that time.
One has to wonder how many such items will get whisked away before long.
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