Quick Preview Of Qualifying As Real Estate Professional

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

Before we go too far down the REPS road, let’s quickly review the simplified basics of real estate professional status-

• You materially participate and provide personal service hours of 750 or more in real property trades or businesses, and

• Over half of your time spent on all activities where you perform a personal service must be spent on real property trades or businesses (this includes W-2 jobs and small businesses). If you work 2,080 hours as a 9-5er W-2 suit, you will need to work 2,081 hours in real estate. Sure, no one wears suits anymore, but you get it.

If you meet these two, you are what the IRC refers to as a qualifying taxpayer, or what the industry calls a real estate professional. But you are not done! The final step is to demonstrate material participation as a real estate professional in each of your rental activities unless formally elected to group all activities as one (more on the 1.469-9(g) election in a bit).

Could you be deemed a real estate professional by definition but not be able to deduct your rental losses? Yes, technically you could. Like a lame duck, you met the two hurdles above but did not materially participate in your rental property activities, so the whole exercise is worthless. This is more common than you think, and we will show some examples later.

As a reminder, IRC Section 469(c)(7) again for fun-

For purposes of this paragraph, the term “real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.