Wow, that is terrible that companies can get away with that. I’d imagine that many people don’t even notice, unfortunately. That is very sleazy. You would think their reputation would go down the tubes.
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IDK how many people can say ‘live and learn’ with various insurance companies and claims - be it homeowner, auto, etc. I won’t mention names, but we are happy we never got too badly burned (we had an almost new car that had damage, and a Houston dealership was in cahoots with this insurance company – they put used parts where they shouldn’t - and it caused leaking into our back floor area which we didn’t notice until too late) - the dealership treated us badly; we had insurance for a rent car, and the insurance company hassled us that our car was ready – it was not! After working night shift and waiting for hours, I saw they taped a stripe on my vehicle – and the other side was painted stripe. I told them they needed to do the car finish correctly. Really bad experience.
Yes, sadly we all learn our lessons the hard way, but I figured that is the point of having a trusted advisor. I don’t want them learning the hard way on my dime. Though our advisor has made some stock purchases he was unhappy with, I guess no one can pick a good stock 100% of the time.
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Doing our taxes now (ugh), and I’m wondering if it’s worth the effort to claim the real estate professional status. Last year it’s very likely my husband worked over 750 hrs on fixing up a condo that we sold, if you include driving time, constant trips to Home Depot and Lowes, online purchases and paperwork…in addition to the massive project of fixing up a completely trashed condo almost entirely on our own. He’s a prodigious record keeper, so we have the records. It would save us over 14K, and our only other income was from pensions, not work.
However, I don’t care much to deal with the IRS and I don’t want to trigger an audit. We had no rental income from this unit last year, just the big capital gains from the sales. Are any of you here real estate professionals, and what do you think?
Actually, edit to add, my husband says he doesn’t think it would add up to 750 hours, so I think I’m not going to bother with this. So disregard, please!
I think such a dramatic difference would warrant a CPA consult.
Paging @notrichenough and @sherpa !
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Did our taxes last night… ugh indeed! Even with Turbotax it is not a pleasant exercise.
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Another unpleasant financial exercise coming my way. I finally have a decent choice of investments in my 401(k)… now I can consolidate all the old crappy little ones into one decent plan.
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Yeah, no fun. And actually, TurboTax makes some things unnecessarily difficult. Makes me wonder if the program just gives you a false sense of security that it’s been done right.
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My motto is “trust but verify” when it comes to tax software. 
I don’t check the math but I do double check the forms to make sure nothing was missed. Like cost basis for some investment sales.
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@busdriver11 - Perhaps I’m missing something here, but it’s my understanding that the only benefit of the real estate professional status is allowing the taxpayer to write of otherwise non-deductible rental losses. And it sounds like you’re trying to minimize capital gain income rather than deduct rental losses.
I’m probably misunderstanding something. If so, please set me straight.
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There’s three requirements to claim real estate professional status:
- you worked more the 750 hours in real estate activities or businesses
- you worked more than 50% of all your working hours in real estate activities or businesses
- you “materially participate”
There’s something like 7 different things you can do to materially participate, you can google the list.
The 750 hours test and 50% test must be met by one spouse, hours for material participation can come from both spouses.
You need to keep good records about the time involved. And IIRC, travel time from your home to the property and back cannot be counted.
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Ah, then he definitely wouldn’t make the cut if you can’t count travel time, so I won’t even look at his records to check. Thanks!
@sherpa, we’re getting hammered by the Net Investment Income tax, the 3.8% Obamacare tax on capital gains and such. It can be avoided if you fit into the real estate professional category.
@busdriver11 - Now you’ve got me thinking about this for our situation too. Reading the rules is complicated and confusing. I’ll need to talk to my accountant.
Maybe @notrichenough can give shine more light on this. In our case, all our income is passive (interest, rentals, and long term capital gains). Even after depreciation our rentals produce taxable income, so there are no passive losses to offset. We manage our rentals ourselves, so we might meet the requirements.
But it’s further complicated by the fact that the rentals are in one entity and the land sales generating long term gain are in a different entity. Both entities are owned by the same people (our kids, DW, and me).
The kids wouldn’t meet the tests.
I’d be ecstatic to minimize the Net Investment Income Tax and the 3.8% Medicare surtax, but reading the rules is making my head spin.
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It does seem overly complicated, but it would be worth slugging through it if you could save a bundle on taxes.
Couldn’t you do direct rollovers of old 401k plans to IRAs, where you have a much wider range of investment options?
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Of course, many types of investment income (most dividends, long term capital gains) have a greater than 3.8% lower tax rate than wages and salaries, and the investment income is not subject to Social Security or Medicare payroll tax. So it is kind of like a partial rollback of the tax benefits given to many types of capital income over labor income.
But then giving capital income favored rates and then partially rolling it back makes tax calculations more complicated twice.
The one time I sold a rental for a profit was in 2019, my tax program excluded the capital gains from the NIIT. My wife qualifies for real estate professional status and we materially participate in all of our rentals.
AFAIK the 3.8% medicare surtax applies only to earned income, not investment income such as capital gains and rental income.
It can be difficult to get RE professional status, 750 hours is a lot if you have only a few rentals. That’s basically 3 hours every work day. We don’t spend nearly that much time on our rentals (15 units) but my wife is a full-time real estate agent so she gets the hours that way. If you have other jobs the 50% rule gets pretty hard to meet.
It is also difficult to materially participate in all of your rental units (if you have multiple buildings) unless you elected to aggregate them (which we did many years ago).
Getting RE professional status may also get you the Qualified Business Income Deduction (QBID) if your rental activities rise to the level of a trade or business (if you have more than one rental, you may/probably qualify). This scrapes 20% (-ish) off the top of your rental profits.
If you think the rules around RE professional status and material participation are vague and tricky, wait until you dive into the QBID rules. 
OBDisclaimer: I am not a tax professional, I’ve just had to learn a lot about this stuff. This is definitely tax professional territory unless you a lot of research.
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@ucbalumnus is right, and I’ll be the first to acknowledge that we’re benefiting immensely from a tax code that favors returns on capital over earnings from labor.
We might gripe about a 3.8% Medicare tax or the Net Investment Income tax, but can’t complain that we haven’t paid SS or self employment tax in decades and are harvesting capital gains at lower rates than most people pay on their income from labor.
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Actually now that I think about it, I’m not sure if QBID deduction is dependent on RE professional status, it may just be whether your rental activities rise to the level of a trade or business, and you meet the income limits. If you are materially participating and you have multiple buildings, it probably does IMO. Consult your tax professional 
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