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Continued Rental Losses

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If the losses are $25,000 or less, I doubt anyone at IRS would be interested in audit of the tax return unless the losses stem from false deductions or understated rents. I don't know of any agent raising the issue that large rental activities is a IRC 183 hobby loss.

I should note that qualifying as a real estate professional ONLY removes the IRC 469 presumption that ALL rentals are passive. Your client must still "materially participate" in EACH property. However, your client should ELECT to treat all rental properties as ONE activity so that the time spent on all properties owned counts as ONE activity.


I have a client that has shown significant ($100,000) real estate losses for 10 years or more. He qualifies as a real estate professional and made the election years ago to treat all rental properties as one activity. A few years ago he was audited by the IRS specifically in relation to the repairs and maintnance expenses he claimed. The results were "no - change". I believe real estate depreciation is one of the last recognized legitimate tax advantages. I doubt your client has not "turned a profit". They may have not shown taxable income overall on the properties but believe me my client is definitely profitable. Since depreciation is only a "timing" issue - I bet if you consider their income before depreciation you will see how much they are actually profiting.

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