Determining whether you are a real estate professional or a passive investor can have significant tax implications.
Real estate investment can often lead to significant tax savings due to depreciation and other deductions that are immediately incurred. Individuals classified as real estate professionals can use losses from real estate activities to offset sources of income such as wages, active business income, or portfolio income. However, these losses are treated as passive for individuals who cannot achieve real estate professional status. These passive losses would generally only be able to be used to offset other passive income. They could also be carried forward to future years if they are not able to be used currently.