Full-time Firefighter Not a Real Estate Professional

In order to claim losses from real estate activities, other than a $25,000 loss allowance for active participants with adjusted gross income below a set amount, a taxpayer must be a “real estate professional.” This means meeting a two-prong test:

1. Spending more than half of all personal services for the year in real property trades or businesses in which the taxpayer materially participates
2. Putting in more than 750 hours of service during the year in real property trades or businesses in which the taxpayer materially participates.

Having a full-time job makes it virtually impossible to be a real estate professional. Take the recent case of a firefighter who held a real estate license and owned a number of rental properties. For his job, he worked on an eight-day cycle 24 hours on, 24 hours off, 24 hours on, five days off (2,332 hours in 2015 and 2,386 hours in 2016), which is more than 40 hours a week. He had no records to show how many hours he worked on his rental properties. So his rental losses were disallowed (Whoriskey, TC Summary Opinion 2021-30).

Note: Hours of participation in real property trades or businesses may be established by any reasonable means. But they must identity the services performed and the number spent in the activities. The courts have allowed the use of appointment books, calendars, or narrative summaries, but not “ballpark guestimates” of participation.