No. Real estate professional status (REPS) is the best known route to deducting cost segregation losses against other income, but it is one of three routes, and for many investors it is the hardest one to reach.
The three ways cost segregation losses become deductible
1. Real estate professional status. Under IRC section 469(c)(7), you qualify if you spend more than 750 hours per year in real property trades or businesses and more than half of all your personal service time there. REPS alone is not enough: you must also materially participate in the rental activity itself under Reg 1.469-5T, which is why most investors with multiple properties make the grouping election under Reg 1.469-9(g) so the hours count across the whole portfolio.
2. The short-term rental path. Under Reg 1.469-1T(e)(3), a property whose average guest stay is 7 days or less is not treated as a rental activity for the passive loss rules. Materially participate and the losses are non-passive. No REPS required, which is why this is the common route for people with full-time jobs.
3. Other passive income. Passive losses always offset passive income, from profitable rentals, from passive K-1s in syndications and funds, from any passive source. No status test applies.
A worked example
A married couple owns 4 rentals. One spouse manages them full time, logs about 1,100 documented hours, and has no other job, so the REPS tests are met. In March 2026 they buy an $800,000 long-term rental; land is worth $160,000, leaving $640,000 of depreciable basis. An engineering study moves 25%, or $160,000, into 5, 7, and 15-year classes, all eligible for 100% bonus depreciation under IRC section 168(k) because the property was acquired after January 19, 2025. The rental reports a $150,000 first-year loss. With REPS plus material participation, that loss deducts against the other spouse's wages, worth $52,500 of federal tax deferred at a 35% marginal rate.
Where people get this wrong
- A full-time W-2 job in another field makes the more-than-half test nearly impossible for that earner. On a joint return, either spouse can qualify, but one spouse's hours cannot be combined with the other's.
- The $25,000 rental loss allowance under IRC 469(i) phases out between $100,000 and $150,000 of MAGI, so it rarely helps the people asking this question.
- Hours need contemporaneous logs. The IRS litigates REPS cases on documentation more than anything else.
- Missing all three routes does not destroy the deduction. The losses suspend on Form 8582 and carry forward indefinitely, releasing against future passive income or in full when you sell.
Amadae's free Tax Strategy Projector models the REPS and short-term rental scenarios against your own income, and the cost segregation screen inside its savings playbook estimates the reclassification and first-year benefit before you commission an engineering study.