Real Estate Professional Status (REPS) Tax Savings Calculator

Real Estate Professional Status (REPS) under IRC §469(c)(7) lets a taxpayer treat rental losses as non-passive and offset W-2 or business income. Two tests: (1) more than 750 hours in real property trades or businesses, (2) more than 50% of total personal services time. Both spouses' time can count if material participation is established. Source: IRS Pub 925, IRC §469(c)(7).

How REPS Unlocks Rental Losses

Without REPS, rental losses are passive activity losses (PAL) under §469 — they only offset passive income, not W-2 wages. With REPS, rentals become non-passive: losses (especially from cost segregation + bonus depreciation) can wipe out W-2 income and create big refunds. A doctor with $400k W-2 + $150k cost-seg loss could save $55k/year (at 37% bracket).

The Two Tests in Detail

(1) 750-Hour Test: More than 750 hours per year in 'real property trades or businesses' — development, construction, acquisition, conversion, rental, operation, management, leasing, or brokerage. (2) 50% Test: More than 50% of personal service time in real property trades. A full-time W-2 employee almost cannot qualify because their W-2 hours exceed 750 — leaving little room. Spouses can split — one qualifies as REPS while the other works W-2.

Aggregation Election Is Critical

Without filing the §469(c)(7)(A) election to aggregate all rental activities, you must prove material participation in EACH rental separately — basically impossible with multiple properties. The aggregation election (a one-line statement on your tax return) lets you pool hours across all rentals. This is the most common REPS mistake — qualifying time-wise but losing in audit because no aggregation election was filed.

Last updated May 2026. Sources: IRS Pub 925 (Passive Activity), IRC §469(c)(7).