Real Estate Professional Status (REPS)

Please Note: REPSLog is NOT a lawyer or CPA, and this is not legal or financial advice. Please consult a qualified professional for guidance regarding IRS rules and regulations.

Real Estate Professional Status (REPS) is a tax designation by the IRS that allows real estate professionals to treat property losses as active, meaning they can deduct these losses directly against their regular income. This results in significant tax savings by reducing taxable income, potentially lowering tax brackets, and increasing allowable deductions.

Qualification Criteria

• More than 50% of personal service hours must be dedicated to real property trades or businesses.
• At least 750 hours per year must be spent actively working in real property trades or businesses.

Material Participation Tests

You must meet one of the IRS’s material participation requirements for each activity, including:

• Spending 500 hours or more on the activity during the year.
• Performing all, or nearly all, the work for the activity yourself.
• Spending more than 100 hours on the activity and ensuring no one else spends more time than you on it.
• Participating in a way that is substantial and regular throughout the year.

What Qualifies as Material Participation?

Material participation activities involve hands-on, day-to-day tasks where you actively manage, operate, or make significant decisions for your real property trades or businesses—such as managing tenants, overseeing repairs, or negotiating leases.

Source: Publication 925 Cat. No. 64265X Passive Activity and At-Risk Rules and At-Risk Rules