Good Records Help Part-Time Ski Instructor Prove She is a "Real Estate Professional"

If you have rental properties, your rental income is generally classified as "passive" unless you can prove you're a "real estate professional".

To be such a "real estate professional", you must work at least 750 hours per year on the properties, among other requirements.

In a recent Tax Court case, Moon v. Commissioner, TC Summary Opinion 2016-23, the Tax Court found that a part-time ski instructor was, in fact, a real estate professional because she had good records and testimony which showed she spent 750 hours on her rental properties and otherwise met the requirements to be a professional.

So the moral is, if you hope to be classified as a "real estate professional", keep good records of your activities on your properties.

According to her activity summaries, petitioner satisfies the requirements of
section 469(c)(7)(B)(i). Respondent conceded that petitioner materially
participated in all of her real property trades or businesses during the years in
issue. Petitioner’s activity summaries indicate that she performed more than 750
hours of personal services in real property trades or businesses in which she
materially participated in each year. The parties agreed that petitioner worked less
than 200 hours each year as a ski instructor. Therefore, more than one-half of the
personal services that petitioner performed in trades or businesses during the
taxable years were performed in real property trades or businesses in which she
materially participated.

According to her activity summaries, petitioner satisfies the requirements of
section 469(c)(7)(B)(ii). Petitioner’s activity summaries indicate that she
performed more than 750 hours of services during 2008, 2010, and 2011 in real
property trades or businesses in which she materially participated.
Respondent asserts that petitioner’s activity summaries are not reliable
because the logs that they are based on were not prepared contemporaneously and
petitioner overstated the time that she spent on the real estate activities in these
logs. On the basis of our review of the logs and petitioner’s credible testimony,
we conclude that the logs were prepared contemporaneously and the time in the
logs is not overstated.

We conclude that petitioner satisfies the requirements of section
469(c)(7)(B) and her rental property trades or businesses are not per se passive.
Since these activities are not per se passive, they are not passive if petitioner
materially participated in them. See sec. 469(c)(1). As discussed above,
respondent conceded that petitioner materially participated in all of her rental real
property trades or businesses during the years in issue. Accordingly, petitioner’s
rental real property trades or businesses were not passive activities for the years in
issue.

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