NIIT Real Estate Professional Exception 2027 Calculator
Estimate the 3.8% Net Investment Income Tax savings if your rental activity qualifies under the Real Estate Professional exception.
What Is the Real Estate Professional Exception?
Under IRC §469(c)(7), if you qualify as a Real Estate Professional (REP), your rental real estate activities are treated as NON-passive — exempting them from both the passive activity loss rules AND the 3.8% Net Investment Income Tax (NIIT). For 2027, NIIT still applies to MAGI over $200K single / $250K MFJ. Source: IRC §469(c)(7), §1411. Last updated: May 2026.
The Two-Part REP Test
You must meet BOTH: (1) More than 750 hours/year in real property trades or businesses you materially participate in, AND (2) More than 50% of ALL your personal services for the year in real property trades. The 50% test makes it nearly impossible for full-time W-2 employees with side rentals to qualify.
Material Participation Still Required
Even with REP status, you must materially participate in each rental activity (or properly group/aggregate them via the §469(c)(7)(A) election). The 7 material participation tests include 500+ hours, substantially all participation, or 100+ hours and more than anyone else. Document hours contemporaneously.
Why REP Beats NIIT
A real estate investor with $75K rental income and high MAGI pays $2,850/year in NIIT without REP status. Over 10 years that's $28,500 of pure tax savings if they can substantiate REP. Plus REP unlocks unlimited passive loss deductions — often worth $20-50K/year more in early years from depreciation.