Real Estate Professional (REP) status is an IRS designation that converts rental losses from passive to non-passive — meaning losses from depreciation and other deductions can offset W-2 income, business income, and other ordinary income without limit.
Requirements (both must be met):
- More than 50% of your personal services during the year are in real estate trades or businesses in which you materially participate
- More than 750 hours per year in those real estate activities
REP status combined with cost segregation and bonus depreciation can create very large paper losses that shelter significant ordinary income — a strategy frequently used by physicians, tech workers, and high earners married to a full-time real estate investor.
Related Terms
MACRS Depreciation
IRS tax deduction allowing investors to deduct the cost of a building over 27.5 years (residential) or 39 years (commercial).
Cost Segregation
IRS-approved engineering study that reclassifies building components to shorter depreciation lives, accelerating tax deductions.
Passive Activity Loss (PAL)
Tax losses from rental properties that can only offset passive income — unless you qualify as a real estate professional.