When searching for a real estate professional, there are many things to consider before hiring a company or individual. In short, real estate marketing strategies are not the same as traditional marketing approaches. While you will still actively perform these tasks, you will most likely not be the one doing the work. A real estate professional will approach your business with an objective of increasing your exposure and build brand awareness of your property.
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Generally speaking, real estate marketing activities are thought to be passive activities although you can still materially participate in them on a daily basis. For example, you must have performed at least 500 hours of related services in the past two years or have a demonstrated track record of income from these services. As part of your advertising strategy, you will want to create or acquire several quality contacts in your area of real estate. These contacts will provide your company with a steady source of potential clients. If a client is interested in the real estate owned by your company, they will most likely contact you and specifically request information regarding your services.
To qualify as a real estate professional, you must meet a number of criteria and have documented proof of the income you receive each year were performed in real property transactions or trades. Many professionals qualify based upon the number of trades or contracts they have signed in the last 12 months. In order to qualify for this level of income, you must have a number of contracts in your personal service portfolio. Contract sales usually do not qualify.
In addition, you will need to substantiate the type of activity you engage in each year. This documentation may be completed on your own or you can hire a certified public accountant or real estate professional with experience in substantiating your activity to qualify as a taxpayer. Most professional tax preparers have the capability to enter and document this type of activity for taxpayers. In general, if your income is more than you spend each year, you qualify as a taxpayer.
In order to qualify as a real estate professional with material participation, you need to enter into a rental agreement. Your contract should include a section that states that the taxpayer is not required to engage in any activity that is considered self-dealing. Generally, it is the landlord’s responsibility to disclose the existence of any material participation. However, if the agreement does not contain this language, the IRS will generally excuse the landlord from this requirement.
Determining whether you meet the requirements to qualify as a real estate professional does not end with determining whether or not you meet the threshold requirements. You must also review your tax return and other documents with the IRS. Remember, if you are self-employed, your tax returns will be the most complete documentation of your income and deductions.