REAL ESTATE PROFESSIONAL

[KATHERINE]

Hi friends,

I have a question regarding the professional status: the client received a lot k1s.  some from he is one of the major partners, like 10%-50%, some marked as limited and some marked as generals., and I knew he is part of the management.   Then there a lot which he has 0.008%-1%, which he was marked as  limited partners.   We decided he could be qualified for professional treatment.   I will mark the ones I knew he part of the management and K1 % is kid of big as professional.  How about those from outside, which is very small % and outside marked him limited partner?  Is income from these small ownership K1 also get professional treatment which exempt from investment tax?  

Thank you so much for any comments or thoughts.

Sincerely, 

 

Kate

 

 

[KATHERINE]

36 minutes ago, KATHERINE said:

Hi friends,

I have a question regarding the professional status: the client received a lot k1s.  some from he is one of the major partners, like 10%-50%, some marked as limited and some marked as generals., and I knew he is part of the management.   Then there a lot which he has 0.008%-1%, which he was marked as  limited partners.   We decided he could be qualified for professional treatment.   I will mark the ones I knew he part of the management and K1 % is kid of big as professional.  How about those from outside, which is very small % and outside marked him limited partner?  Is income from these small ownership K1 also get professional treatment which exempt from investment tax?  

Thank you so much for any comments or thoughts.

Sincerely, 

 

Kate

 

 

Hi friends, I knew limited partner normally should be material, should be not treated even active, so should not be qualified for this treatment at all.  since someone internally argue with me and I cannot make myself clear to tell them, if so small% and outside already marked limited, we cannot take those k1s and apply the professional treatment, I need find something solid.  sorry to interrupt when everyone is so busy already.

[Lee B]

Here is one of the many resources on this topic:

https://www.thetaxadviser.com/issues/2014/jul/skarbnik-july2014.html

[jklcpa]

Another excellent article on the subject with a discussion of rules for those that also holdings as limited partners where rental income from the limited partnerships are less than 10% of the total.

https://www.thetaxadviser.com/issues/2017/mar/navigating-real-estate-professional-rules.html#:~:text=The election may be made,it in a subsequent year.
 

Within the article, use Crtl-F to find "limited" and you will see this paragraph:

Quote

If the election is made and at least one interest in rental real estate is held by the qualifying real estate professional in a limited partnership interest, the combined rental real estate activity will be treated as a limited partnership interest for purposes of determining material participation. Accordingly, the taxpayer will not materially participate in the combined rental real estate activity unless the taxpayer satisfies the first, fifth, or sixth tests above in Step 2. (Ref 54)  If, however, the taxpayer's share of gross rental income from all of the taxpayer's limited partnership interests in rental real estate is less than 10% of the taxpayer's share of gross rental income from all of the taxpayer's interests in rental real estate for the tax year, this rule does not apply, and the taxpayer may determine material participation under any of the tests listed in Step 2 that apply to rental real estate activities.55

This article and the one posted by cbslee have the code references for the rules mentioned within each article.

Edited October 6, 2023 by jklcpa
added stuff

[KATHERINE]

Thank you every one!  I am clear on this now.  I will not take those small K1 which I knew for sure he is not involve at all.   Because the even choose election to combine all activities to decide, but the ones to take consideration has to be material (except hours) first.  so those are not qualify.    Thank you so much!

 

[Randall]

I copied the info for a client to explain the rules for RE professional.  And told him to keep good records, time sheets, etc.  This was in 2021 for preparation of 2022.

[KATHERINE]

On 10/9/2023 at 11:58 AM, Randall said:

I copied the info for a client to explain the rules for RE professional.  And told him to keep good records, time sheets, etc.  This was in 2021 for preparation of 2022.

Yes.  Actually, NYS is kind of strict on these hours., good record is imporant.   some other people confused too, and thought once the 469, then those will all be counted too.  Now, I think each activities needs test separately (except the hours), basically, involves management as landlord.    thank you so much!