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:: Passive Activity Loss ATG - Exhibit 2.5: Real Estate Professional: Interview Half Personal Services Test
Exhibit 2.5: Real Estate
Professional: Interview Half
Personal Services Test
_____ Describe
the work you perform as a real
estate professional. Check
occupations by signatures and
W-2s.
_____ Who is
the real estate professional,
you or your spouse?
_____ Does the
spouse claiming to be the real
estate professional work
full-time or part-time? If the
taxpayer has a full-time job
working 2080 hours a year in a
non-real property business, he
must work 2081 on his real
property businesses to meet
half-personal services test!
_____ What
percentage of each real property
business(es) do you own? Unless
taxpayer owns 5 percent or more,
time is not counted. See IRC §
469(c)(7)(D)(ii). If, for
example, the taxpayer works
full-time for a construction
company, but does not own any of
the company, he is not a real
estate professional.
750 HOUR
TEST
Time does not
count for purposes of the 750
hour test and the half personal
services test – unless the
taxpayer materially participates
in the activity. One spouse
ALONE must meet the 750 hour
test.
_____ Who
performs the services, husband
or wife? Hours by husband?
Hours by wife?
_____
Approximately how many hours did
you spend working on your
rentals in the year under exam?
Ask the taxpayer for supporting
documentation (appointment
books, diaries, calendars, logs,
etc.) You may want to give
taxpayer a log to be completed
for each rental – and for each
year under exam. Material
participation is a year by year
determination. Rentals are
generally not time intensive.
_____ If
non-working spouse claims to be
the real estate professional,
ask what other commitments
he/she may have. Is the spouse
a student? Is the spouse
providing full-time care to
young children?
MATERIAL
PARTICIPATION IN THE RENTALS
_____ Who
monitors the rentals? Who
collects the rent? Who does the
repairs?
_____ Do you
have a real estate agent or
manager or employee responsible
for any of the rentals? Ask for
each rental property. Check
Schedule E properties for large
commissions or management fees.
Also check for large labor
expense - possibly a hired
contractor spent more time than
taxpayer. If there is paid
management, it is a strong
indicator taxpayer did not
materially participate.
_____ Is anyone
besides you involving with
managing or overseeing any the
properties? Does a relative or
friend manage/monitor the
property for free?
_____ Does a
tenant receives free/reduced
rent for managing the rentals –
or for caring for the
properties?
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