Rental real estate activities are per se passive, they may nonetheless avoid the passive loss limitations if the taxpayer (1) qualifies as a real estate professional and (2) materially participates in each rental activity.

The Health Care and Education Reconciliation Act of 2010 imposed a new tax on passive activities starting in 2013.  The modified adjusted gross income (MAGI) amount for this new 3.8% tax to apply is $250,000 for a joint return or surviving spouse, $125,000 for a married individual filing separately, and $200,000 in any other case.

We envision this to become a major issue that the IRS will start looking at closely as the government searches for additional revenues, and the documentation to substantiate your claim to avoid the tax is not being done properly in our opinion.

Click here for a very detailed article that was published in the December issue of the Journal of Accountancy that reviews this particular issue.

We strongly encourage you to do the research and discuss this with your CPA if you have real estate and fall into this new tax hazard.

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