Real Estate Professional Status (REPS) — The tax advantage every investor should know

Kel

Kel

— 2 min read
Real Estate Professional Status (REPS) — The tax advantage every investor should know
Photo by Andy Feliciotti / Unsplash

Real estate can be messy; tenants, repairs, endless management. So why do so many investors still choose it over “hands-off” investments like stocks?

One reason: tax advantages. And one of the biggest is Real Estate Professional Status (REPS), an IRS designation that can turn rental losses into massive tax savings.

What Is REPS?

Normally, rental property losses can only offset other passive income. But if you qualify for REPS, you can use those losses to offset active income, including W-2 wages. That means if you’re a high earner or running large renovations with big depreciation write-offs, REPS can dramatically reduce your tax bill.

How to Qualify for REPS

The IRS has two main tests:

  • 50% Test – More than half of your working hours need to be in real estate activities, things like construction, management, leasing, acquisitions, development, or brokerage and etc..
  • 750-Hour Test – You must log at least 750 hours in those activities per year.

Material participation includes:

  • Managing properties
  • Sourcing and acquiring deals
  • Overseeing renovations or construction
  • Leasing and tenant management

Short-Term Rentals & Spousal Loophole

There are some carve-outs here. Short-term rentals (average stay of 7 days or less) can sometimes qualify without meeting the same 750-hour requirement — but you need to be the one managing them.

If you’re married and file jointly, your spouse’s hours can also count toward qualifying. A lot of high-income families use this strategy: one spouse qualifies as REPS, the other keeps their W-2.

Why Tracking Is Critical

REPS only works if you can prove your hours and expenses. The IRS will want:

  • Time logs of qualifying activities
  • HUDs, receipts, and invoices
  • Clean, property-level financials

How Carbon Copi Makes REPS Easier

With Carbon Copi, every transaction and document is tied to the right property and project. That means:

  • Expenses automatically matched with source docs
  • Organized HUDs, contracts, and receipts
  • An audit-ready paper trail for your CPA and the IRS

If you want to scale your portfolio, lower your taxes, and claim one of the most powerful real estate tax benefits, REPS is the strategy. Carbon Copi helps you document it, prove it, and keep more of what you earn.

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