Richard S. Leyh et ux. v. Commissioner – Contemporaneous Log Detailing Rental Property Activity Permissible in Defining Real Estate Professional for Income Tax Purposes

Richard S. Leyh et ux. v. Commissioner (T.C. Summ. Op. 2015-27) details a case in which a taxpayer could revise her contemporaneous log of daily rental property activity and qualify as a real estate professional for income tax reporting purposes.

When the IRS audited the taxpayer's 2010 return, the log totaled 632.5 hours spent in real estate activity (at 12 rental properties). The taxpayer lived 26-30 miles from the properties and when revising the log, which did not include travel time, it totaled 846 hours.

Remember a criteria to be considered a Real Estate Professional is documentation substantiating more than 750 hours in the tax year of real estate activity.

As always, the discussion of the legal underpinnings is noteworthy. In this case, "the focal point of the controversy is whether the petitioner's revised log is sufficient to show that she spent at least 750 hours in the activity...".

Particularly the IRS relied on U.S. Tax Court Memorandum Opinions in which "...the Court recognized that the record keeping requirements of the regulations are somewhat ambiguous concerning the records to be maintained by taxpayers but that the regulations do not allow a post event ballpark guesstimate."

The decision was in favor of taxpayer, who argued pro se. So there you go. The take away message is to KEEP AN ADEQUATE LOG of real estate related activity as a real estate professional so that you do not have to behave contemporaneously if examined by the IRS.

John R. Dundon, EA [720-234-1177, John@JohnRDundon.com]. John is a lifelong student of the US Tax Code; enrolled with the United States Treasury Department to practice before the IRS (Enrolled Agent # 00085353); under contract with the IRS as a Certified Individual Taxpayer Identification Number (ITIN) Acceptance Agent; regulated under USC 31 Section 330 & USC 26 Section 7525a.3.A; governed under US Treasury Cir. 230.

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Posted in Rental Real Estate, Tax Court, Tax Deductible Expenses, Tax Guidance & Preparation

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