Has anyone seen the formal definition per the IRS for tax laws regarding what constitutes a "real estate professional"? There are a lot of definitions on the web and the IRS version is very vague.

If you qualified as a real estate professional for 2004, report income or losses from rental real estate activities in which you materially participated as nonpassive income or losses, and complete line 43 of Schedule E (Form 1040). If you also have an unallowed loss from these activities from an earlier year when you did not qualify, see Treatment of former passive activities under Passive Activities, earlier.

Qualifications. You qualified as a real estate professional for the year if you met both of the following requirements.
More than half of the personal services you performed in all trades or businesses during the tax year were performed in real property trades or businesses in which you materially participated.

You performed more than 750 hours of services during the tax year in real property trades or businesses in which you materially participated.


Do not count personal services you performed as an employee in real property trades or businesses unless you were a 5% owner of your employer. You were a 5% owner if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest.

from IRS publication 925

That sounds like trouble. If I read that right, you need to have your >50% of your INCOME in real estate. That makes it tough to qualify if you have a full time job outside of real estate yet are very active in rentals.

I heard you can create a LLC and have that pass the losses on to you by making the LLC function as a real estate professional. That may be the best way to do it.