Qualifying as a real estate professional has been important to those in the real estate profession for years – doing so means that the taxpayer is not subject to the general rule that rental income is per se passive regardless of the taxpayer’s level of activity. But qualifying as a real estate professional has taken on greater significance recently with the introduction of the 3.8 percent net investment income tax.

There should be caution about claiming yourself a real estate professional. In a recent summary opinion, a tax court ruled that a taxpayer was liable for the 20-percent accuracy-related penalty after failing to qualify as a real estate professional (Nicholas S. Farris et ux. v. Commissioner, TC Summ. Op. 2015-53) There are many requirements to meet the definition of a "real estate professional", but in this summary opinion, the hour requirement was not met.

For more information about this case, the tax benefits of claiming real eststae professional, or more requirements, please read this article from our affiliate McGladrey (“RMS”). http://rsmus.com/what-we-do/services/tax/tax-alerts/court-upholds-tax-penalty-misclassification-real-estate.html For more information about tax savings, legal requirements, or other topics, please contact Eric Bell or Joseph Lewis