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Tax strategy · IRC § 469(c)(7)
Rental losses are normally passive and cannot offset wages or business income. Owners who qualify as real estate professionals and materially participate can use those losses, often created by cost segregation and bonus depreciation, against all their income. The IRS audits these claims closely.
Serving United States, Virginia, Washington, DC, Maryland.
What we handle
To be a real estate professional for a year, more than half of your personal services in all trades or businesses must be in real property trades or businesses in which you materially participate, and you must spend more than 750 hours in them. On a joint return one spouse must meet both tests alone. Those who work full time in another job rarely qualify.
Qualifying is only the first step. Each rental must also meet a material participation test, so most owners make the election under Treas. Reg. section 1.469-9(g) to treat all rentals as one activity. Owners who do not qualify may still deduct up to $25,000 of rental losses under section 469(i) if they actively participate, phased out between $100,000 and $150,000 of modified adjusted gross income.
Speak with an advisorWhere we help
A full-time employee's logs claimed about 751 hours a year on a rental. The court found the logs unreliable and the losses passive, and upheld penalties.
Time spent on call, waiting for something to happen, does not count toward material participation.
Hours spent running a short-stay inn did not count toward the 750 hours for the owner's other rentals because the inn was not a rental activity; the remaining 679 hours fell short.
Courts accept credible, detailed records made at the time.
Our approach
Map your hours, other employment and properties.
Make elections and set up logs and property management roles.
Coordinate depreciation, cost segregation and loss limits.
Prepare the record and represent you if audited.
Questions
If your question isn't here, call (703) 880-8412 and you'll reach a person.
Development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing and brokerage of real property.
It is very difficult. More than half of all your working hours must be in real estate, so a 2,000-hour job requires more than 2,000 real estate hours.
Not for the 750-hour and more-than-half tests; one spouse must qualify alone. Spouses can combine hours for material participation.
Usually yes. Without the election to aggregate rentals, you must materially participate in each property separately.
A rental with an average stay of seven days or less is generally not a rental activity, so it is tested under material participation instead and its hours may not count toward real estate professional status, as in Bailey.
A contemporaneous log of dates, hours, property and task, supported by emails, receipts and calendars.
Latest updates
Authorized representatives can now make balance-due, amended return, extension, proposed assessment and federal tax deposit payments for business clients online. Appropriate authorization for the client and tax matter is required.
Source: IRS (IR-2026-134)
For 2027 the joint-return standard deduction rises to $33,200, the estate tax basic exclusion to $15,480,000, the annual gift exclusion to $20,000 and the Section 179 expensing limit to $2,640,000. Our advisors recommend revisiting year-end gifting and equipment purchase plans with these figures in mind.
Source: IRS (IR-2026-133)
All 6,576 nominated census tracts, including 2,594 rural tracts eligible for enhanced benefits, become Opportunity Zones on January 1, 2027 for ten years. Investors with capital gains should review the new map before committing funds.
Source: IRS (IR-2026-132)
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