RENT - 199 AND (MAYBE) REAL ESTATE PRO

[BLACK BART]

My guy has a dozen rent houses.  I think he probably does have 250 hours of qualifying labor for the 199 (there's no log-could get one next time); but he asks about the real estate pro status because he wants to start paying in SE sometime  (plus getting the SE health deduction).  I'm not so sure about that one because he's got a repairman on the payroll although he himself is constantly tending to the tenants.  But, in case he wants to go for that next year and comes up with a 750 hour log, I've never done that before. 

(1)  Does the rent get moved to a schedule C (don't see how all that E info would fit)?

(2) Would you simply add an SE form for the social security?

(3) Enter earning where on SE?  Only fit I see is on page two, section B, part one, line two, code A (other than farming).  

(4) Can this be done or is it crazy (you needn't reply if the answer's yes)? 

[GingerM]

I have never done this but what happens when you click line 12 "check for real estate professional" at the top of the schedule e data input screen?

[joanmcq]

RE pro does NOT trigger SE tax.  it just allows you to deduct losses regardless of your income.  Your guy's only hope is to have a property that provides services; for instance a vacation type place with daily maid service.  That would be SE income.

[Max W]

I just did a rental that converted to Sch C.  The owner decided to become an AirBnB host AND serve breakfasts.

It was a little nasty allocating the depreciation and expenses as the owner rents the house and lives in a detached cottage.  When it was Sch E, the software took care of that.

 

[BLACK BART]

21 hours ago, GingerM said:

I have never done this but what happens when you click line 12 "check for real estate professional" at the top of the schedule e data input screen?

I clicked it and nothing happened.  Guess Joan's right.

 

 

[joanmcq]

Also does nothing if you have income instead of losses!

[michaelmars]

HE CAN pay himself a management fee which gets deducted on E and picked up on C, or better yet on a S corp with payroll.

[BLACK BART]

7 hours ago, michaelmars said:

HE CAN pay himself a management fee which gets deducted on E and picked up on C, or better yet on a S corp with payroll.

That's a brilliant idea.  But...there's a setback.  Discussing it with my client, I realized that I had misunderstood him.

He was not interested in paying social security -- instead, he simply wanted to get the deduction for self-employed health insurance only.  I had previously advised he couldn't get it.  But, his friendly neighborhood insurance agent (substituting for the infamous "barber") told him he could get it because he routinely sold policies to many other landlords who (unlike him) had no connection to their operations other that collecting the rent, yet they were all happily deducting it with no complaints at all from IRS.  I believe that because probably nobody's minding the store at IRS and although I can argue the agent's got a policy sale axe to grind, I can't argue that the other landlords who say yea are lying because they're probably not. 

What a dilemma! The dopey insurance agent probably thinks he's right, the other landlords are clueless, my client's gullible, and I'm barring the door with ethics (likely known as "that tax guy who doesn't know what you can write off").   

[DANRVAN]

On 3/24/2019 at 8:18 PM, BLACK BART said:

That's a brilliant idea.  But...there's a setback.  Discussing it with my client, I realized that I had misunderstood him.

He was not interested in paying social security -- instead, he simply wanted to get the deduction for self-employed health insurance only.  I had previously advised

other landlords are clueless, my client's gullible, and I'm barring the door with ethics (likely known as "that tax guy who doesn't know what you can write off").   

Show him that the deduction is allowed under sec 162(l)(1) only if the taxpayer has earned income per sec 401(c), as defined as self employment under sec 1402(a) which is subject to self employment tax under sec 1402(b)!!!  That is how it works.

[BLACK BART]

Yeah and thanx, but I've already tried that. 

About five years back (when IRS was still actually replying to letters) he asked about the SE health deduction, so I wrote them a detailed query about it and got a good agent who wrote back quoting and underlining relevant passages which I went over with the client to no avail.  He was suspicious of IRS and wasn't interested in Section anything then or now, so I've decided to just forget the whole thing.