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Real Estate Professional Status (REPS)

If you (or your spouse) qualify as a real estate professional under IRC §469(c)(7), all your rental losses become non-passive — fully deductible against W-2 or other active income. The bar is high: 750+ hours/year AND more than half your work time in real estate trades.

The two-part test: (1) more than half your personal services in trades during the year were in real property trades; (2) you performed more than 750 hours of services in real property trades. Both must be true. For dual-earner households, only one spouse needs to qualify — the loss benefit then applies to the joint return.

The classic structure: high-earner spouse keeps the W-2 job; non-earning or part-time-working spouse qualifies as the real estate professional. The rentals generate paper losses through depreciation and cost segregation; those losses offset the W-2 income; the household saves tens of thousands in tax.

IRS scrutiny is intense — document every hour, keep contemporaneous logs, ensure the qualifying spouse really is the one doing the work. Audit triggers are common; the technical mechanics matter; a CPA familiar with REPS is essential.

#REPS#real estate professional#material participation

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