Generally, a loss from real estate activities is a passive activity loss (PAL). A PAL is only deductible from passive income unless the taxpayer qualifies as a “real estate professional.” That means the taxpayer must prove that at least 750 hours of service during the year involved real estate. In one case, an HVAC business owner and his wife took PAL deductions for 2013 and 2014, claiming they both qualified as real estate pros for those years. They provided logs of hours spent on real estate activity. The U.S. Tax Court rejected their PAL deduction because the logs weren’t contemporaneous, didn’t clearly show who worked which hours and fell short of the hours test. (TC Memo 2022-40)
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