Real Estate Professional status (REPS)

Real Estate Professional status (REPS) under IRC Section 469(c)(7) is one of the most powerful planning levers for high-income households with rental real estate. Qualifying converts rental losses from passive (suspended until passive income arrives or property is sold) to non-passive (immediately deductible against W-2 or business income).

Qualification requirements

To qualify in a given year, you (or your spouse, if filing jointly) must:

1. Perform more than 750 hours of services in real-property trades or businesses, and
2. More than half of all personal services performed in the year must be in real-property trades or businesses

Both tests must be met — 750 hours alone is not enough if you're also working 2000 hours as a software engineer.

Material participation per property

Even with REPS, you must materially participate in each rental activity (or elect to aggregate). Material participation typically means 500+ hours in the activity, or being the most active person.

Election to aggregate

By default, each rental is a separate activity. The aggregation election under Reg. 1.469-9(g) groups all rentals into a single activity for material-participation purposes. This makes it much easier to clear the 500-hour bar.

Audit risk

The IRS scrutinizes REPS claims heavily — log every hour with date, activity, and location. Generic "I'm a real estate professional" claims without contemporaneous records routinely lose in tax court.