What is Real Estate Professional Status (REPS)?
Real Estate Professional Status (REPS) is an IRS designation that lets qualifying taxpayers offset W-2 income with rental losses (depreciation, mortgage interest, etc.). Without REPS, rental losses are passive and can only offset passive income.
To qualify: (1) more than 50% of your personal services in any trade/business must be in real estate trades or businesses, and (2) you must spend more than 750 hours per year on those activities. Both conditions every year. Spouse-on-the-mortgage doesn't qualify unless they meet the test individually.
When combined with cost segregation + bonus depreciation, REPS is the most powerful tax shelter available to high-earning real-estate investors. A $200k W-2 earner who qualifies for REPS and buys a $1M rental with proper cost seg can often shelter their entire W-2 income that year via the resulting paper loss.
Documentation is critical — the IRS scrutinizes REPS claims hard. Keep contemporaneous logs of hours, activities, and properties. Don't claim REPS unless you can prove the 750 hours / 50% of services test with documentation.
Concepts that connect.
Depreciation is the annual non-cash tax deduction allowed against rental property income — residential is depreciated over 27.5 years, commercial over 39. It reduces taxable income without reducing cash flow, the single largest tax advantage of rental real estate.
Cost segregation is a tax strategy that breaks a real estate purchase into shorter-lived components (5-year personal property, 15-year land improvements) to accelerate depreciation. Often produces 20-40% additional first-year tax deductions vs straight 27.5-year depreciation.
Bonus depreciation lets investors deduct a portion of qualifying property costs in the first year instead of over the asset's useful life. In 2026, the bonus rate is 60% (down from 100% in 2017-2022), phasing to 0% by 2027 without congressional action.
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