5 Powerful Tax Strategies for Real Estate Investors

Day 4: Real Estate Professional Status (REPS) – The IRS’s Best-Kept Secret

Most real estate investors can’t use rental losses to offset other income because of passive activity loss limits (IRC § 469).

But there’s one major exception: Real Estate Professional Status (REPS).

If you qualify, you can use real estate losses to offset W-2 income, business income, and more—leading to massive tax savings.

What Is Real Estate Professional Status (REPS)?

The IRS allows full-time real estate professionals to avoid passive loss limits if they:

✅ Spend 750+ hours per year in real estate activities (AND)

✅ More than 50% of their working time is in real estate

Why REPS Is a Big Deal

Normally, if you earn over $150,000 per year, rental losses can’t be deducted against non-passive income. Instead, they carry forward indefinitely.

BUT… if you qualify for REPS, your rental losses are fully deductible—including depreciation, mortgage interest, and expenses.

Example: How REPS Saves You Money

Let’s say:

• You earn $300,000 from a W-2 job.

• You own rental properties that generate a $100,000 paper loss (due to depreciation & expenses).

💰 Without REPS: That $100,000 loss is “passive” and can’t be deducted against your salary.

💰 With REPS: The full $100,000 loss offsets your salary, reducing taxable income to $200,000—potentially saving $30,000+ in taxes.

🚀 Huge savings!

How to Qualify for REPS (The IRS Audits This!)

The IRS loves auditing people who claim REPS, so make sure you:

✅ Track your hours! Keep detailed logs showing 750+ hours spent on property management, acquisitions, renovations, etc.

✅ Prove material participation. Just owning rentals doesn’t count—you need active involvement (managing, showing properties, supervising repairs).

✅ Don’t mix with another full-time job. If you work a 40-hour/week W-2 job, the IRS won’t believe you spent 750+ hours in real estate too.

Tomorrow’s Topic: The Short-Term Rental (STR) Loophole – The Passive Income Hack

What if you don’t qualify for REPS, but still want to use rental losses to reduce taxable income? The Short-Term Rental Loophole lets you do exactly that—legally.