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Chapter 8 Introduction
Table Of Contents
By Jason Watson, CPA
Posted Sunday, May 25, 2025
Chapter 8 is another tactical tax planning chapter for rental property owners. Last chapter was the short-term rental loophole, and we are turning the page like Bob Seger. The real estate professional status, codified under IRC Section 469(c)(7), can create the ability to deduct rental losses against W-2 wages, business income, and other non-passive earnings. Similarly to the short-term rental loophole, REPS is one of the most powerful tax tools in real estate, but also one of the most misunderstood and scrutinized.
The chapter begins by explaining how real estate income is typically classified as passive and subject to loss limitations. If your modified adjusted gross income (MAGI) exceeds $150,000, you likely can’t deduct your rental losses unless you qualify for REPS. To do so, you must meet two key tests: 1) spend at least 750 hours on real property trades or businesses, and 2) over half of your personal service time must be in those trades. This chapter dives deep into what activities and hours count, and when short-term rental time is excluded.
But REPS tests above alone isn’t enough. You must also materially participate in your rental activities. The chapter includes real-world strategies, IRS audit triggers including a nice series of questions, and court case insights to help you avoid common pitfalls.
Jason Watson, CPA, is a partner and the CEO of WCG CPAs & Advisors, a boutique yet progressive tax, accounting and rental property consultation firm with over 80 team members headquartered in Colorado serving real estate investors worldwide.
I Just Got A Rental, What Do I Do? 2025 Edition
This KB article is an excerpt from our 420+ page book (some picture pages, but no scatch and sniff) which was updated May 25, 2025, and is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or visit our webpage which provides more information.
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