If you get the REALTOR Magazine Daily News, you might have seen the story: IRS Gets Picky About Who's a Real Estate Pro.
This is interesting...
Licensed real estate agents and brokers do not always qualify for real estate professional status under the new rules, which mandate that individuals spend no less than 750 hours on qualified real estate activities: developing, redeveloping, constructing, reconstructing, acquiring, converting, renting, operating, managing, leasing, or selling property.
So... how is this going to effect the industry? Is this a big deal?
Let's face facts, the barrier to entry is pretty low in real estate. It is an easy business to get in, and it carries a little more "legitimacy" than starting a lot of different "home businesses". And there are a plethora of benefits to owning a business when it comes to tax treatment. My accountant told me that if I didn't already have a business (or three) that I should start one.
However, there are a lot of agents that are part time and only occasionally get involved in a transaction. And I would bet that a fair number of these agents are utilizing the tax benefits of owning a small business... and if they are losing those benefits... might they drop their licenses?
Could be... For some, it may not make sense to keep their license active. For others, it still might... But I think this might lead to an erosion of real estate agents in the market.
For agents, I don't think it is going to be a big deal. That erosion was taking place anyway... and those agents probably would have fallen by the wayside before long.
I think the biggest thing is that this open the door for individual agents to have to document how many hours they spend in "qualified real estate activities"... and the next question is "what will the IRS define as 'qualified real estate activities'"? Of course, I am a FairTaxer... That would solve this problem as well as a few others.
Investors are a different story...
I'm not going to go into that in this post, but it looks like real estate investors might be looking at a tougher road... Just what we need right now when real estate investors are more important than ever.
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