This is part 3 of 5 in a series on Passive Activities (see Part 1 and Part 2).

Passive loss rules do not apply to real estate professionals. However, the rules for who is a real estate professional for tax purposes are rather specific and the IRS enforces these rules rather strictly. If one is classified as a real estate professional, any losses are treated as ordinary losses and may be deducted against other income sources. Gains are taxed at ordinary income rates, however, income from rental activities is not subject to self-employment tax. However, rent is one of the categories of income that is subject to the Net Investment Income Tax, so there may be an additional 3.8% tax on these profits.

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