Activities of Real Estate Professionals

Real estate professionals are individuals who engage in real estate activities as a trade or business and meet specific criteria set by the Internal Revenue Service (IRS). These professionals may be involved in buying, selling, developing, or managing real property for profit. The IRS provides guidance on how these activities are taxed, including rules for deductions, basis, and reporting.

Key Activities Covered

Sales and Dispositions of Real Estate: Real estate professionals often engage in the sale of property, which may result in capital gains or losses. The IRS outlines how to report these transactions using Form 4797 (Sales of Business Property) and Schedule D (Form 1040).
Depreciation and Basis: Professionals must track the basis of their real estate assets and may depreciate certain property over time. Publication 551 (Basis of Assets) and Publication 946 (How To Depreciate Property) provide detailed guidance.
Repairs and Improvements: Costs for repairs and improvements to rental or business property may be deductible or capitalized, depending on the nature of the expense. Publication 225 (Farmers' Tax Guide) includes information on real estate repairs and improvements.
Rental Income and Expenses: Real estate professionals who rent out property must report rental income and deduct allowable expenses. Publication 527 (Residential Rental Property) offers detailed instructions.
Casualty and Theft Losses: If property is damaged due to a casualty or theft, professionals may claim a loss. Publication 584 (Casualty, Disaster, and Theft Loss Workbook) provides guidance on calculating and reporting such losses.

Reporting Requirements

Real estate professionals must report their income and expenses on Form 1040, Schedule C (Profit or Loss from Business), or Schedule E (Supplemental Income and Loss), depending on their business structure. If they are part of a partnership, they may receive a Schedule K-1 (Form 1065) detailing their share of income, deductions, and credits.

Useful IRS Publications

Publication 225 – Covers topics such as real estate taxes, repairs, improvements, and sales of business property.
Publication 551 – Explains the basis of assets, including real estate.
Publication 584 – Provides guidance on casualty, disaster, and theft losses for personal-use property.
Publication 527 – Details tax rules for residential rental property.
Publication 946 – Explains how to depreciate property, including real estate.

Source:

Disclaimer: Always verify information with the official Federal or State Department of Revenue Forms and Instructions.