the following is taken, in its entirety from the NYSAR E-News 

IRS cracks down on real estate agent classification
Inman News(03/23/07) Butters, Robert D.; Fayne, Adam

A growing number of licensed real estate agents and brokers are being audited by the Internal Revenue Service. Those who are unable to prove that they meet the definition of a real estate professional under the Internal Revenue Code (IRC) are classified as passive real estate investors and prohibited from deducting their job-related losses, including depreciation as well as office and travel expenses, in full.

The IRC dictates that real estate professionals must be a material participant in real property trades or businesses, to which over 50 percent of their personal services or more than 750 hours must be tied. Appointment books, calendars, and narrative statements can be used to prove material presentation, and daily time reports and logs may be helpful as well.

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