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Fundamento

Real Estate Professional Status — a quick self-test

Answer two yes/no questions: (1) Were 750+ of your work-time hours in real-property trades or businesses this year? (2) Were more than half of all your work-time hours in real-property trades? If both YES (for you or your spouse), the household can deduct rental losses against W-2 income.

Real-property trades include: development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, and brokerage. Sales agents do qualify; passive investors do not. The qualifying spouse must materially participate in the rental activities (not just qualify under the time tests).

Documentation is everything if audited. Keep contemporaneous logs of hours by activity. Include: property inspections, tenant calls/meetings, contractor coordination, accounting and bookkeeping, marketing, advertising, travel to and from properties. Conservative practice: track to 15-minute intervals across a calendar app or dedicated time log.

The classic structure for high-earner W-2 households: one spouse keeps the W-2; the other becomes the REPS-qualifying spouse, runs the rentals, generates depreciation losses, and shelters joint income. Combined with cost segregation, year-one paper losses of $100K+ are realistic on a modest portfolio.

#REPS#material participation

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Tax — strategy & traps

Depreciation — the biggest tax benefit of direct ownership

The IRS lets you deduct a portion of the building cost (not land) each year as depreciation — over 27.5 years for residential, 39 for commercial. A $300K building generates ~$10,900/year of deductions. At a 32% marginal rate, that's $3,500/year in tax savings even before any other deduction.

 Tax — strategy & traps

1031 exchange — defer the tax forever (or until death)

IRC §1031 lets you defer all capital gains and depreciation recapture when you sell investment property — if you reinvest the entire proceeds into another "like-kind" property within strict timelines: 45 days to identify, 180 days to close.

 Tax — strategy & traps

Opportunity Zones (OZ 2.0) — now permanent

The One Big Beautiful Bill Act (signed July 4, 2025) made the QOZ tax incentive permanent and added enhancements. Invest capital gains into a Qualified Opportunity Fund within 180 days to defer the gain; hold 10+ years to make all QOF appreciation tax-free. First new round of QOZ designations takes effect Jan 1, 2027.

 Tax — strategy & traps

Step-up in basis at death — the most underused estate strategy

If you hold appreciated property until death, your heirs receive it at its current fair market value as their basis — eliminating the embedded capital gain entirely. Combined with 1031 exchanges during life, this is the foundation of multi-generational real estate wealth.