What Hours Can You Count for REPS

By Jason Watson, CPA
Posted Sunday, May 25, 2025

Let’s try to clear up some confusion on hours. There are two sets of hours. There are the hours that make up the 750 hours test to be called a real estate professional. We’ll call those REPS hours.

The other set of hours is material participation hours. We’ll call those MP hours.

Can MP hours be considered REPS hours? Generally, Yes, they are a subset of REPS. Caution- see short-term rental issue below.

Can REPS hours be considered MP hours? They might, however, the list of activities that count towards REPS is much larger and includes real estate development, home building, real estate agent activities, among others.

Can the same hour be used for both REPS and MP hours? Yes, provided the hour qualifies for both.

Cool, so, what hours count? We exhaustively discussed this in an earlier section as well on page xx. Investor and research times do not count. Travel time might count depending on your facts (the window is small). Acquisition time might count if you complete the purchase (convert investor hours to acquisition hours). On-call hours do not count; you must “perform” an activity or what the tax code refers to as personal service.

Time Spent On Short-Term Rentals

Short-term rentals with average guest stays of 7 days or less cannot contribute to the 750 hours test since they are not deemed rental activities. Wait, what? It’s true! Temporary Treasury Regulations 1.469-1T(e)(3) reads “an activity involving the use of tangible property is not a rental activity for a taxable year if for such taxable year the average period of customer use for such property is seven days or less.”

Sidebar: Don’t confuse tangible property with personal property. Real property is tangible property since you can touch it.

In Bailey v. Commissioner, Tax Court Memo. 2001-296, and again in Bailey v. Commissioner, Tax Court Summary Opinion 2011-22, which are different people with different facts but the same problem- the court used a literal interpretation of “the average period of customer use for such property is seven days or less” and stated that the activity was not a rental activity, and therefore those hours did not count as material participation for real estate professional status.

Spousal Hours

Two spouses cannot combine hours to reach the 750 / REPS hours test. Both spouses may qualify, but if things are tight, it is ideal to pick one person to focus their time on achieving the necessary amount of time.

Again, we beat this up a ton with Tax Court cases and other IRS correspondence in a previous section on page xx. Check it out!

Real Estate Professional Material Participation

If you meet the 750 / REPS hours and more than half of your personal services are in real estate trades or businesses, you are designated a real estate professional. However, and as a reminder, to have your rental activities be considered non-passive so your rental losses are non-passive, you must materially participate in your rentals. Yes, this is nuanced.

For example, many licensed real estate agents can easily prove the REPS hours test for being a real estate professional. However, they might not spend enough time on their own personal rental properties or rental activities, and therefore cannot prove material participation (MP hours).

Regulations 1.469-9(g) Election

We discussed this in a previous section when reviewing material participation. Here is a brief summary again-

You can elect to group all your rental properties into one activity so the material participation test is less onerous. If you had three rentals and were needing to use the 500 hours test for material participation (test #1), you would need to spend 3 x 500 or 1,500 hours total at a minimum. The Treasury Regulations 1.469-9(g) election is a formal election on the tax return that endures each year unless revoked.

However, and this is a big deal, you cannot group your short-term rentals with an average guest stay of less than 30 days with your mid-term and long-term rentals. Wait, what? Short-term rentals, as defined just now, are not considered rental activities under Treasury Regulations 1.469-1T(e)(3)(ii). In other words, you cannot mix apples and oranges with this grouping election. Group short-term rentals for STR loophole, and group other rentals for REPS.

Are there other downsides to the election? Yes, there are. Again, please check out the material participation section referenced above. There is a ton more to it than what we listed here.