REPS is a special IRS classification that lets certain real estate investors treat rental income and losses differently from the usual passive rules.

Normally, rental income is passive, and any losses can only offset other passive income — not your day job wages or business profits. But if you qualify as a Real Estate Professional, your rental activity can be treated as active — so big paper losses (like from depreciation) can offset your ordinary income too.

That can mean huge tax savings for landlords with lots of depreciation.

It’s not just about owning rentals — you have to actively work in real estate. To qualify, you must:

1️⃣ Work at least 750 hours during the year in real estate trades or businesses (like property management, development, construction, or brokerage).

2️⃣ Spend more than half of your total working hours in real estate activities.

This means you can’t have a full-time W-2 job in another field and still claim REPS — unless you also work more than 750 hours in real estate AND it’s more than your other job. The IRS checks this closely.

Nope — you don’t need a license. REPS is about how much time you personally spend on real estate business activities.

Managing your own rentals, overseeing repairs, negotiating leases — that all counts. Being hands-on is key. Passive investing alone doesn’t qualify.

If you qualify and materially participate in your rentals, you can use rental losses (mostly from depreciation and expenses) to directly offset your other income.

So if you or your spouse have big W-2 earnings, REPS lets you use rental losses to shrink your taxable income — sometimes by tens of thousands of dollars per year. This is a major way high-income investors legally cut their taxes.

Yes — qualifying for REPS is one hurdle, but you also need to materially participate in each rental property (or group them together as one activity).

That means you have to do significant work on the property — like managing guests, repairs, contractors — not just collecting rent checks.

The IRS has several tests, but the most common is working 100+ hours per year on each property and more than anyone else. You can also qualify by putting in 500+ hours total across all your rentals if they’re grouped.

The biggest mistake is claiming REPS without real records to back it up. The IRS wants proof — time logs, receipts, emails showing your involvement.

If you get audited and can’t show exactly how you hit the 750-hour and material participation tests, the IRS will reclassify your losses as passive, disallow the offset, and hit you with back taxes and penalties. It’s 100% legal — but you have to track your time and run it like a business.

Yes — REPS is tested at the taxpayer level for married couples filing jointly. If one spouse hits the 750-hour and 50% test, the couple qualifies.

This is common: one spouse keeps a W-2 job for income and benefits, while the other runs the real estate side full-time.

If you have just one rental, use a property manager for everything, and have no intention of being hands-on — REPS likely won’t help you.

It works best for investors with multiple properties who actively manage them and want to unlock passive losses to reduce high W-2 or business income taxes.

If you want total hands-off income, REPS probably isn’t worth chasing.