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What Is The Difference Between Passive And Non-Passive Rental Income?

The complex world of real estate taxation contains hidden opportunities that could dramatically impact your bottom line—if you know where to look. Brian Moss, a senior tax associate with MP CPAs who recently passed all four parts of his CPA exam, breaks down the critical distinction between passive and non-passive rental income classification that every property owner needs to understand.

Most property owners don't realize that rental income defaults to passive status, severely limiting how losses can offset other income sources. Brian walks us through exactly what it takes to potentially reclassify your rental activities as non-passive, unlocking significant tax advantages. He details the dual requirements of material participation (requiring regular, continuous involvement) and real estate professional status (demanding more than 50% of your personal services and 750+ annual hours in real property businesses).

Whether you're a seasoned real estate investor or considering your first property purchase, this episode delivers actionable insights that could potentially save you thousands in taxes through proper planning and documentation.

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