Qualifying for Go Zone Bonus Depreciation as a Real Estate Professional

The most reliable way to qualify for the Go Zone bonus depreciation is to be a Real Estate Professional. But what does this mean? Do you need to have a license or work for a real estate broker to be a real estate professional? How far do you need to go to qualify for the Go Zone bonus depreciation?

Being a Real Estate Professional

The IRS treats most rental activities as passive, and passive losses can be offset only by passive income for many taxpayers. If an individual is a “qualifying taxpayer;” that is, he or she is a real estate professional, the activity is considered nonpassive, thus allowing losses from qualifying real estate activities to offset other nonpassive income such as wages, interest, dividends, capital gains, trade or business income, etc.

For example, suppose you are a very successful real estate broker and you expect to make $600,000 this year. You know that you are facing a heavy tax burden. If you qualify as a real estate professional for Go Zone purposes, then you could conceivably zero out all of that income with Go Zone Bonus Depreciation.

Directly from publication 925, the definition of Real Estate Professional are these qualifications. You qualified as a real estate professional for the year if you met both of the following requirements.

1. More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.


2. You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.

Do not count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest.

If you file a joint return, do not count your spouse's personal services to determine whether you met the preceding requirements. However, you can count your spouse's participation in an activity in determining if you materially participated.

Real property trades or businesses.

A real property trade or business is a trade or business that does any of the following with real property.

• Develops or redevelops it.
  
• Constructs or reconstructs it.
  
• Acquires it.
  
• Converts it.
  
• Rents or leases it.
  
• Operates or manages it.
  
• Brokers it.

Remember, you will still need to meet material participation requirements which are also found in Publication 925. Generally these can be meet with proper structuring and logging of hours.