Real Estate Professionals – Planning Around the Passive Activity Loss Rules

By Jason Favreau, Principal, BerryDunn

Under the passive activity loss (PAL) rules, rental activities are generally considered passive activities with few exceptions. Consequently, many taxpayers find that the PAL rules broadly restrict the deduction of tax losses generated from their rental real estate activities. One exception to the passive treatment of a rental real estate activity occurs when the activity is operated by a taxpayer who qualifies as a “Real Estate Professional.”

In order for a taxpayer to qualify as a Real Estate Professional (REP) there are two basic requirements that must be met annually.

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