Regulations

Qualifying as a real estate pro may take sting out of losses on rentals

Real Estate Tax Talk

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If you're a landlord whose rentals lose money, it may mean a lot if you qualify as a real estate professional for tax purposes. Nothing illustrates this fact of life better than a brand-new case handed down from the U.S. Tax Court involving Najeem and Olubunmi Adeyemo, a married couple who owned seven rental properties in Maryland. During the housing downturn, the Adeyemos experienced difficulty renting out their properties and collecting rent from tenants. As a result, they incurred substantial losses: $171,651 in 2008 and $96,806 in 2009. Fortunately, they did have other income: Mrs. Adeyemo worked full time as a pharmacist, and Mr. Adeyemo worked in pharmaceutical sales. Their joint wage income was $232,992 in 2008 and $175,354 in 2009. So, the Adeyemos had big rental losses and a big income. Could they deduct the former from the latter and drastically reduce their income taxes for years in question? Unfortunately for the Adeyemos, the U.S. Tax Court, in its first dec...