REPS Status
Do you qualify for Real Estate Professional Status?
Aggregation election (Reg §1.469-9(g))
File a written election once with your tax return. Treats all rental real estate as a single activity for material participation tests. Almost always recommended for multi-property investors.
Annual federal+state tax savings
$14,800/yr
You qualify for REPS AND material participation. Your $40,000 of rental paper losses become non-passive and fully offset W-2/active income at your 37% combined marginal rate. Bonus: rental income (when properties turn profitable) is also exempt from the 3.8% NIIT once you’re an active participant. No SE tax applies either way — rental income is not self-employment income. Plan for IRS scrutiny: contemporaneous time logs are mandatory — not reconstructed from memory. See REPS guide for audit-defense practices.
750-hour test
900 hrs ✓
Need >750 hours in real property trades
51% test
64% ✓
Need >50% of personal services in RE
REPS qualification
Pass
Both tests met
Material participation
Pass
600 hrs aggregate (need 500)
The audit risk — this is real
REPS is one of the most-audited claims on the return. The IRS specifically targets W-2 employees claiming REPS while working full-time. Tax court cases consistently rule against taxpayers who:
- Reconstructed time logs after audit notice (almost universally lost)
- Counted "research" or "education" time as personal services
- Had spouse claim REPS without actually doing the work
- Submitted suspiciously round hour totals (exactly 800 hours every year — no)
- Tried to exclude W-2 hours from the 51% denominator
Documentation that works: daily time log in a spreadsheet or app (REPSTracker, Stessa). Time-stamped emails. Calendar entries. Receipts/invoices for property work that prove on-site presence.
Spouse strategy: on a joint return, REPS is determined per individual — the 750-hour and 51% tests apply to ONE spouse only (hours can’t be combined for qualification). However, once one spouse qualifies, both spouses’ hours can be combined for the per-property material participation test. Common setup: surgeon spouse + non-W-2 spouse manages 5-15 rentals.
File Form 8582 to track passive activity loss carryovers in non-REPS years. Watch cost-seg recapture: bonus depreciation taken during REPS years gets recaptured at sale — ordinary-income rates up to 25% on §1250 unrecaptured gain. Plan the exit (1031 exchange) before claiming aggressive depreciation.
See full REPS guide for the 7 material participation tests, qualifying activities list, and audit-defense checklist. Tax law is fact-specific — consult a CPA before claiming REPS, especially if you have W-2 income.