Real Estate Professional Status: The Key to Unlocking Major Tax Savings
If you’re investing in real estate and have a significant portfolio, one of the most powerful (yet misunderstood) designations in the tax code is Real Estate Professional Status (REPS).
This status can allow investors to deduct real-estate losses against W-2 or business income — something most taxpayers cannot do.
At Shahbaz & Associates CPAs, we guide clients through qualifying for REPS and leveraging it to reduce taxes legally and strategically.
1. What Is Real Estate Professional Status?
Under IRS § 469(c)(7), qualifying as a Real Estate Professional makes your rental activity non-passive, meaning losses are not restricted by passive-loss limitations.
To qualify:
- You must work 750 hours or more per year in real-estate-related activities.
- More than half of your total working time must be spent in real estate.
- You must materially participate in your rentals.
Activities include property management, leasing, acquisitions, development, or construction — not just reviewing financials.
2. Why It Matters
If you or your spouse qualify:
- You can fully deduct rental losses from income such as wages or business profits.
- You can use cost segregation and bonus depreciation more aggressively.
- You can offset capital gains from other property sales.
This can translate into tens or even hundreds of thousands of dollars in tax savings each year.
3. Documentation Is Everything
The IRS regularly audits REPS claims. Proper documentation includes:
- Time logs and activity summaries
- Evidence of management involvement
- Clear records separating personal vs. business time
Without proof, deductions may be disallowed — even if you legitimately qualified.
Conclusion
REPS isn’t just a “loophole” — it’s a legitimate tax status that rewards active real-estate professionals.
If you’re scaling your portfolio, it’s worth exploring whether you or your spouse can qualify.