A contractor who owns rental properties can qualify as a real estate professional under IRS rules, letting her deduct 100% of rental losses against her construction income and claim full depreciation write-offs. This strategy can replace traditional retirement savings.
Janice says, my husband and I own a construction company. And she goes, we already have some rentals. So I'm going to assume Janice has an LLC with some rentals. Also, most of my contractors, because they're contractors, usually build their own home first. So we're going to assume that Janice has her own home here. So here's their personal res, here's the rentals, and here's their construction company. Very common structure. Okay? Janice brings up a tricky point. She says, I want to be a real estate professional. What it means is that I'm going to get losses from these rentals. And if I'm a tax attorney, which I am, I'm not a real estate professional, nor is my wife. So any losses I have from rentals go into a bucket. And I carry that bucket around the rest of my life. It never runs out. And I can pour out losses whenever I sell a rental. Now what Janice says, well, I want to be a real estate professional. Because if I'm a real estate professional, all of these losses can be deductible against my day job. Our construction company, K1W2 from the S Corp. She's like, oh, my gosh. I want to be a real estate professional so I can get these losses as a write off. Okay. That's why Janice wants to do this. So Janice asks a very interesting question.
She goes, should I become a real
estate professional so we can get better write offs for our rentals?
Janice, you're going to love this answer.
You already are a real estate professional. Sorry if I scared you there. Someone's driving down the road. What's going on? Okay, Janice, you're already a real estate professional.
A contractor by definition under IRS code already qualifies as a real estate professional.
Pen drop. You're there, girl. So you and your husband get 100% write offs every year from all of your rental properties.
Guess what my contractors retire on. Usually not a big 401k, even though
many of them still have one.
My contractors retire on rental property. So, Janice, you're getting the best of both worlds. You're finding little fixer uppers. Your construction company is doing the work. You got low basis on these rentals. You're getting an incredible ROI. And you're getting write offs for all the depreciation. 100% every year. People, Janice is on to the perfect setup. And I teach it in several of my books. I love it. So, Janice, you're good. You go, girl.
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