Real Estate Professional Status (REPS)
Authority: IRC §469(c)(7)
Real estate professional status removes the automatic "passive" label that Section 469 puts on all rental activities, allowing a qualifying taxpayer's rental losses to offset wages and business income. To qualify for a year, the taxpayer must spend more than 750 hours in real property trades or businesses in which they materially participate, and more than half of all their personal-service working time must be in those real property activities. That second prong makes REPS effectively unavailable to anyone with a demanding full-time job outside real estate, though a non-working or real-estate-focused spouse can qualify and benefit the joint return. Qualifying is only step one: the taxpayer must still materially participate in the rentals themselves, which usually requires an election to aggregate all rentals as a single activity. Detailed time logs are essential.
Example
A couple files jointly: one spouse earns $350,000 in tech, the other works 1,100 hours per year managing their four rentals and holds no other job. With REPS and material participation, their $60,000 of rental depreciation losses deducts against the tech salary.
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