US Tax Court Ruling Can Save Real Estate Professionals Millions


As a real estate professional, you most likely already know that you can deduct as many rent losses as you would like and you do not need to pay the 3.8% net investment income tax on your income. You can save on taxes whether you make or lose money. And just last week, it got even better.

The US Tax Court ruled last week that a trust qualifies as another exception for real estate professionals. This case focused on a trust entitled the Frank Aragona Trust which owned and developed real estate rentals and real estate properties. The rentals acquired many losses between 2005-2006. Then the trust deducted federal income tax as ordinary nonpassive losses because it identified itself as real estate professional. Just his month, the US Tax Court ruled disallowed these losses.

Since the trust could not count itself as a real estate professional because less than half of the work put in that year was not real estate-related and because less than 750 hours of work related to real estate was performed, the court disallowed these losses. The IRS, however, argued that this is unfair to the trust because it can never meet the first requirement. The US Tax Court fired back and overruled the IRS because a trust is compiled of trustees who perform work in real estate and therefore can combine their work activities together to meet the requirement. The Frank Aragona Trust is made up of six trustees whose work activities can be added together.

This case is a huge win for trusts that own real estate. However, the IRS can (and will likely) appeal this decision. This appeal could also include detailed regulations, issued by the IRS, on the matter.

To find full documentation on the case, you can go to