Appraiser not a "real estate professional' for IRS purposes and rental property losses on tax return

[ccooper]

Certified Appraiser for decades. Also have Brokers license that I rarely use but only to acquire rental property for my own portfolio.
Now have more than a dozen SFR rental properties.
In past, I have always been able to use my rental property "losses" (with depreciation) against my appraisal income. This depreciation "losses" have been a defining factor for me acquiring new rental property.
Now, CPA is telling me that I have to show a log that my hours of managing my rental properties exceeds my hours of appraisal for my rental "losses" to offset my appraisal income?
When I asked why this was this year I got this response from CPA.

"The IRS definition of real estate professional does not specifically address appraisal work. We are seeing interpretations of the definition that appraisal work does not qualify."

I got this response from AI Copilot when I was searching for my own answers.

"Real estate appraisal is generally not considered a "real property trade or business" under IRS guidelines for the purposes of qualifying as a real estate professional. The IRS defines real property trades or businesses to include activities like development, construction, acquisition, conversion, rental, operation, management, leasing, or brokerage of real property. Appraisal activities are typically not included in this list.
If you're aiming to qualify as a real estate professional for tax purposes, it's important to focus on activities that align with the IRS's definitions."

Anyone else had or have this issue prop up?
Solutions?
Is there a way to report my "consulting" income under my Broker's license to solve this issue?
Or, should I just shop for a new CPA on April 16th?

 

[JTip]

"always been able to" does not mean it is/was right. The losses/write offs have to align with the job associated with the specific income producing function. Gross rents and building depreciation have nothing to do with your appraisal income. Different kitties.

I'm not a CPA, but you have one that has no reason to provide you with bad information.

 

[Ricky LaFleur]

We are seeing interpretations of the definition that appraisal work does not qualify

Maybe it's time to start seeing other people... with other interpretations who are also CPAs, that is. I've found some CPAs borderline consider themselves working to benefit the IRS, not to help you navigate the burdensome abyss that is present day tax regulation.

 

[Terrel L. Shields]

Obviously, an appraiser isn't really a professional...

 

[Joe Flacco]

Appraisal is financial services.

 

[BRCJR]

File different schedules for different entities. Would not the result be the same for the bottom line of tax liability?

1. Schedule 1 (Additional Income and Adjustments to Income): Used to report additional income and adjustments to income.
2. Schedule 2 (Additional Taxes): Used to report additional taxes paid.
3. Schedule 3 (Additional Credits and Payments): Used to report additional credits and payments.
4. Schedule A (Itemized Deductions): Used to itemize deductions.
5. Schedule B (Interest and Ordinary Dividends): Used to report interest and ordinary dividends.
6. Schedule C (Profit or Loss from Business): Used for business profit or loss.
7. Schedule D (Capital Gains and Losses): Used to report capital gains and losses.
8. Schedule E (Supplemental Income and Loss): Used for supplemental income and loss.

 

[Tom D]

Now the account has told you it being done different now. But we don't know how you file everything to answer properly. Once again, not enough info.
Just like in appraising, get a second opinion. Maybe you now need to separate your appraisal/r.e. as a separate entity, pay youself a 1099. Is your broker license under a corp.

I always had a corporation that paid me as a 1099. Had a lot of real estate as an individual. Maybe you should be buying your r.e. as an LLC. Also, too much personal owned r.e. will drop your fica score.
I now buy with a LLC for my projects & ownership.

 

[Mark K]

I believe that you can only write off depreciation to the extent that will offset your net rental income. I do recall some years that my income from my 20 rental units exceeded my appraisal income and I wrote off all the depreciation.


OTOH, eventually you'll have to recapture the depreciation at a rate higher than cap gains so taking less now may save you money down the road.

I'm selling my office this year so next year I'll have LT cap gains and ddepreciation recapture that is going to suck.

 

[sputnam]

You are allowed to have multiple businesses. The IRS is telling you that you can't lump your rental business in with your appraisal business and use losses from one to offset income from the other. I guess you'll have to file two Schedule Cs with your return. It's not the first time that the IRS has changed it's rules. I don't know.. but I suspect... that if you consulted a different tax expert, you might get a different answer.