The importance of determining whether a taxpayer involved in real estate activities is a real estate professional is twofold. First, it establishes whether the taxpayer can deduct losses from real estate activities against ordinary income. Second, it establishes whether income or gains from the real estate activities are subject to the net investment income tax.
Deductibility of rental real estate losses
Passive activity losses are only deductible against passive activity income. A passive activity is an activity involving a trade