Question

Tax implication of real estate license on rental income

Forum|Forum|4 years ago
October 27, 2021
1 reply
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We have income from farm land rental. In the past year I have obtained my real estate license. How will that affect treatment of that income from a tax prospective? What should I be documenting and watching for?

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NateTheGrEAt

Hi DHenke555,

There shouldn't be an impact. Just keep reporting the farm rental as you have been.

You may be thinking of the concept of a "Real Estate Professional", but

1) Just having a real estate license doesn't make you a Real Estate Professional by IRS rules - there are several other substantial requirements.

2) One of the main differences about being a Real Estate Professional is that your income/loss from rentals would be considered nonpassive. However, a rental of bare land with no services provided is not likely to generate a tax loss - there is no depreciation of land. So this may be largely a moot point for land rental.

Hope that information helps!

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D

DHenke555Author

Thanks for the response!! We do have depreciation of a 82k drainage tile system that was installed 3 years ago. Would that make a difference?

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NateTheGrEAt

Does the land rental produce net income or a loss for tax purposes? (Look at Line 22 of your Schedule E in the column for the land rental)

Also, do you qualify as a Real Estate Professional? The requirements are:

More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate.
You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate.

If you do not qualify as a Real Estate Professional, this entire discussion is moot as simply having a real estate license (but not qualifying as a Real Estate Professional) does not change anything about the tax treatment of your rentals.

Here is an earlier discussion about being a Real Estate Professional: Solved: Real Estate Professional status election (intuit.com)

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