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The main benefit of being designated a Real Estate Professional by the IRS has to do with the deductions the IRS will allow you to take on your real estate. Specifically on the amount of losses the IRS will allow you to take from depreciation of your real estate.

When you buy a property for commercial use you are allowed to depreciate the cost of the property over time. In this way you will "lose" money on your tax return, even though your cash flow positive on the property.

If your income is less than $100,000 a year, you don't really need the designation because the IRS will allow you to deduct all your real estate losses. If you make between $100,000 and $150,000, the IRS starts to limit the amount of real estate losses you can take. Once you are over $150,000 you cannot take real estate losses, unless you are designated as a Real Estate Professional in the IRS's eyes.

If you are a Real Estate Professional you can still take all real estate loss deductions on your income tax. See why it's so important.

In order to qualify as a Real Estate Professional you do Not have to be a licensed agent, though if you are it helps. In order to qualify as a Real Estate Professional you must spend a certain amount of your time involved in qualified real estate activities vs other activities you are involved in. A qualified real estate activity is any thing in which you "develop, redevelop, construct, reconstruct, acquire, convert, rent, operate, manage, lease, or sell" real estate.

Essentially if you are involved with real estate more than any other business activity, like working a job in a different field, you qualify as a Real Estate Professional.

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