In a recent IRS memo, the Office of the Chief Counsel responded to a question asking whether qualification tests under Section 469(c)(7)(B) apply separately to each of a taxpayer’s interests in rental real estate when he/she does not elect to treat al such interests as a single rental real estate activity under Treasury Regulation §1.469-9(g).
Section 469(c)(7)(B) provides a qualification test which designates taxpayers as “real estate professionals,” and not subject to a broadly inclusive definition of “passive activity” under 469(c)(2). The qualification test is as follows: (i) more than one half of the personal services performed in trades or businesses by the taxpayer during such taxable year are performed in real property trades or businesses in which the taxpayer materially participates; and (ii) such taxpayer performs more than 750 hours of services during the taxable year in real property trades or businesses in which the taxpayer materially participates.
The IRS opined that whether a taxpayer is a qualifying taxpayer within the meaning of Treasury Regulation §1.469-9(b)(6) and section 469(c)(7)(B) depends upon the rules for determining a taxpayer’s real property trades or businesses under Treas. Reg. §1.469-9(d), and is not affected by an election under Treas. Reg. §1.469-9(g).
Posted by Morgan Yuan, Esq., Associate Editor, Wealth Strategies Journal.