Real Estate Professional Qualification Flow-chart Test
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Did you qualify as a Real Estate Professional this year?
If you qualify as a Real Estate Professional, you may be able to classify a real property (RP) rental activity as a nonpassive activity and thus use any losses from that activity to offset other sources of taxable income.
If you qualify as a Real Estate Professional, you may elect to treat all your RP rental activities as a single activity for purposes of determining how to treat losses related to your RP rental activities. This is called a Grouping election.
Unless you qualify as a Real Estate Professional, RP rentals are otherwise treated as passive activities and passive losses can generally only offset passive income (which, strange though it may seem, does not include income from an investment portfolio). As with all tax things, there are exceptions to these guidelines and these determinations are made annually based on facts and circumstances: please consult a tax advisor about your individual situation to determine the correct tax treatment.