Does anyone know if property management counts toward the 750+ hours for real estate professional status? My spouse works in corporate but I manage our 8 rentals. It's definitely over 750 hours yearly but it's mostly tenant communication, maintenance coordination, and financial management rather than buying/selling properties.

This is such a common issue that trips up both taxpayers and CPAs! I've seen this exact misclassification happen multiple times in my experience with real estate investors. The key distinction that many people miss is that real estate professional status completely removes your rental activities from the passive activity rules - meaning those losses can offset ANY type of income (W2, business, investment, etc.) without limitation. This is huge for high-income earners like you and your spouse. However, as others have mentioned, you're still subject to the Excess Business Loss limitation if your losses are substantial. For 2024, that threshold is $306,000 for married filing jointly. Any losses above that amount get carried forward as a Net Operating Loss carryforward. The documentation requirements are also critical - make sure you're keeping detailed contemporaneous records of your hours and activities. The IRS scrutinizes real estate professional status heavily, especially for high-income taxpayers. I'd recommend using a digital time-tracking system that timestamps entries to create stronger audit protection. Glad you got it resolved! This is exactly why it's important to work with a CPA who specializes in real estate taxation - these nuances can make a huge difference in your tax liability.

This is such a helpful thread! I'm dealing with something similar right now where we're bringing in a new partner for $500k into our consulting partnership. Reading through all these responses, I'm realizing I need to think more carefully about the existing partners' tax implications. One thing I'm still not clear on - if we go with the goodwill method to avoid immediate tax hits to existing partners, how do we actually value that goodwill? Is it just the premium amount ($750k minus proportionate share of assets) or is there a more complex calculation involved? Also, our partnership agreement has a forced buyout provision if someone leaves - does that affect which method we should choose? I'm wondering if creating goodwill on the books might complicate future partner exits.

This is exactly the kind of partnership accounting question that keeps me up at night! I went through something very similar last year when we brought in a new partner for $400k. One thing I learned that wasn't mentioned yet - make sure you get a formal valuation of the partnership before the new partner comes in. Even if you're not required to, it really helps justify whichever method you choose and can protect you if the IRS ever questions the treatment. We ended up using the goodwill method specifically because our existing partners didn't want the immediate tax hit from the bonus method. But here's what caught us off guard - we had to get our partnership agreement amended to address how this newly recognized goodwill would be handled in future distributions and liquidations. Our attorney said this is critical to avoid disputes later. Also, don't forget to consider the impact on your partners' self-employment tax calculations. The method you choose can affect how the partnership's income is characterized for SE tax purposes, especially if you have any guaranteed payments involved. Have you talked to all the existing partners about their preference on the immediate tax implications? That conversation alone might make your decision for you.

Anyone using specific software to track PUC? Our firm has been using an ancient Excel template that's prone to errors, especially with complex corporate groups. We lost a client last year because of a major PUC calculation error that resulted in unexpected tax on what they thought was a return of capital.

The key breakthrough for me was understanding that tax PUC is essentially a "tax cost" concept while corporate PUC is a "legal capital" concept. They serve completely different purposes. Think of it this way: corporate PUC protects creditors by ensuring shareholders can't withdraw their capital contribution without proper procedures. Tax PUC prevents taxpayers from extracting corporate surplus tax-free by disguising it as a return of capital. The Income Tax Act deliberately reduces tax PUC in many situations (like non-arm's length transfers under s. 84.1) because otherwise taxpayers could artificially inflate their tax PUC and then extract corporate earnings without paying tax on deemed dividends. For your exam, focus on the policy reasons behind the adjustments - once you understand WHY the tax rules reduce PUC in certain situations, the mechanical calculations make much more sense. The textbook contradictions you're seeing are probably different fact patterns where different anti-avoidance rules apply. Good luck with your CPA exam! The PUC concepts are definitely challenging but they're fundamental to understanding Canadian corporate tax.

The simplified production method is available for most producers, including nursery/greenhouse operations. Your client would likely qualify since they're producing tangible personal property (plants). The key requirement is that they can't have total indirect costs exceeding $200,000. If they qualify, they can use the absorption ratio method where you calculate a percentage based on section 471 costs and additional section 263A costs, then apply that ratio to ending inventory. For nurseries specifically, you'd typically capitalize direct costs like seeds, soil, fertilizer, and direct labor, plus indirect costs like greenhouse utilities, depreciation on growing equipment, and storage costs. The simplified method makes this much more manageable than tracking every individual cost. Just make sure to check if they qualify for the small business exemption first ($27M gross receipts test) - that would eliminate the need for 263A calculations entirely.

For your manufacturing client with $1.2M in inventory, you'll definitely want to check if they qualify for the small business exemption first - if their average annual gross receipts over the past 3 years are under $27 million, they're exempt from 263A entirely, which would save you a lot of headache. If they don't qualify for the exemption, yes, you'll need to capitalize both direct costs (materials, direct labor) and applicable indirect costs. For interest capitalization specifically, you'll need to determine if any of their debt was used to finance production activities. If they have loans specifically for equipment purchases or working capital for inventory, a portion of that interest would need to be capitalized using either the traced debt method (if you can directly trace the loan proceeds) or the avoided cost method for general borrowings. For your construction client, 263A definitely applies to long-term contracts. You'll need to allocate both direct costs (materials, labor for specific projects) and indirect costs (equipment depreciation, job site utilities, etc.) to each individual project. The costs get capitalized until the project is substantially complete, then they become part of cost of goods sold. I'd strongly recommend getting familiar with the simplified methods if your clients qualify - they can save you tons of time compared to detailed cost tracking. The key is understanding which method works best for each client's specific situation.

21 Just curious - what industry are you contracting in? The best app might depend on your specific situation. For example, if you're in construction, an app that handles inventory and job materials might be different than what a freelance designer would use.

Great thread! As someone who's been contracting for a few years now, I'll add that whatever app you choose, make sure to back up your data regularly. I learned this the hard way when my phone died and I nearly lost months of receipt data. Also, don't forget about bank and credit card statements as backup documentation. Even with a great receipt app, your financial institution records can serve as additional proof of business expenses if you ever get audited. One more tip - start tracking everything from day one, even small expenses like parking meters or coffee during client meetings. Those small amounts really add up over the year, and it's much easier to develop the habit now than to try to recreate months of expenses later!