Real Estate Professional Status Frequently Asked Questions

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

Here are some FAQs you might find helpful as a chapter summary to our riveting real estate professional status material-

What is Real Estate Professional Status (REPS)?
REPS is an IRS designation that allows qualifying individuals to treat rental activities as non-passive, unlocking the ability to deduct rental losses against other income including high W-2 income.

What are the two main requirements for REPS?
You must spend 750+ hours on real property trades or businesses annually. Those hours must exceed 50% of your total working hours. From there, you must materially participate in your rental property activities.

Can I count hours from a W-2 job toward REPS?
Only if that W-2 job is in a real property business (like construction, brokerage, or property development).

What qualifies as a real property trade or business?
Straight from the code- Development, redevelopment, construction, acquisition, conversion, rental, operation, management, leasing, or brokerage.

Does owning a rental property qualify me for REPS automatically?
No. Ownership alone isn’t enough—you must also meet the hourly and participation tests.

Can I group all my rentals to meet REPS requirements?
Yes, but you must file a 1.469-9(g) election to treat all rentals as one activity for material participation purposes.

What is the 1.469-9(g) election?
It’s a formal election filed with your tax return that lets you group rental activities to simplify material participation time hurdles.

Can I revoke the grouping election?
Only with IRS permission and a material change in circumstances. In other words, unlikely unless you sell most or all your rental properties.

Does my spouse’s time count toward the 750 hours?
No. REPS qualification is individual, though material participation hours can be combined with your spouse’s.

Can a stay-at-home parent qualify for REPS?
Yes, if they meet both the 750-hour and more-than-50% tests through real property activities. Common strategy!

What happens if I qualify for REPS but don’t materially participate?
Your rentals are still considered passive, and losses will be limited.

What activities count toward material participation hours?
Tenant communication, leasing, showings, maintenance oversight, bookkeeping, and property management.

What doesn’t count toward material participation hours?
Researching properties, education, investor-level analysis, or work done while the property is not in service. There are some devils in the details.

Does short-term rental time count toward REPS?
No, if the average guest stay is 7 days or fewer, the IRS considers it a non-real estate activity similar to a hotel, and it won’t count for REPS. Yeah, bummer, and most people are unaware.

Is real estate education time REPS-eligible?
No. Time spent in courses or self-study does not count toward REPS hours.

Can I claim REPS if I own through an LLC?
Yes, as long as you materially participate in the rental activities within the LLC.

What if I work a full-time job—can I still qualify?
It’s tough. Unless your full-time job is in real estate activities, such as working for a developer, you must spend more time in real estate than at your job (so, 2,081 hours in real estate activities plus your 2,080 hours at your job… gets tough).

Does flipping or wholesaling count toward REPS?
Yes. Flipping and wholesaling are considered real property trades or businesses.

Do REPS hours have to be evenly spread across properties?
No, but you must materially participate in each activity unless you aggregate them under 1.469-9(g).

What are some audit triggers for REPS?
Two biggies- W-2 or using property managers extensively (the IRS looks at management fees listed on your tax return as a proxy).

Can I amend a return to claim REPS?
Yes, but be cautious. Retroactive REPS claims are closely scrutinized and must be well-supported.

Can REPS help with state taxes?
Maybe. Some states (like California) don’t conform to federal REPS rules, so deductions may still be limited at the state level. Yuck.

Do I need REPS to deduct cost segregation losses?
Only if your rental is passive. STRs (average guest stay of 7 days or less, material participation) or REPS (750 hours, more than 50%, material participation) allow those deductions to become non-passive and immediately usable.

Is REPS a one-time status or renewed annually?
REPS is tested every year—you must meet the 750-hour and more-than-50% thresholds each tax year.