Real Estate Professional Status

The § 469(c)(7) gate that makes ALL rental losses non-passive — cost segregation against W-2 income hinges on it. Two hour tests plus material participation, with the citations.

Tax year

Year this applies to

Your hours this tax year

Count hours in real property trades or businesses in which you materially participate — development, construction, acquisition, rental operation, management, brokerage (§ 469(c)(7)(C)). Hours as a W-2 employee only count if you own more than 5% of the employer.

Hours in real property trades or businesses

Hours in all other work (W-2 job, other businesses)

A full-time job outside real estate (~2,000 hours) makes the more-than-half test nearly impossible — this is where most claims fail on audit.

I materially participate in each rental — or I elect to treat all rental real estate as a single activity (Treas. Reg. § 1.469-9(g))Qualifying as a real estate professional alone isn't enough — each rental must still pass a material-participation test unless you make the aggregation election with your return.

Married filing jointly?

One spouse must meet BOTH hour tests alone — spouses can't combine hours for the 750-hour or more-than-half tests (§ 469(c)(7)(B), flush language). Material participation, by contrast, does count both spouses' work.

Your rentals

Qualifying matters when rentals run a loss — usually their depreciation. Not saved; signed in, your saved rentals are used.

Annual gross rent

Operating expenses

Schedule E lines 5–19, before depreciation — which comes from the purchase.

Purchase price

Land value

Land isn't depreciable. The county assessor's land ÷ total assessed value is the usual split; many areas run 15–30%.

Purchase date

Sets the bonus depreciation rate and the holding period.

Building

Rest of your return

Filing statusYour other income

Verdict

Enter your hours to see whether you qualify.

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750-hour test — § 469(c)(7)(B)(ii)

0 hours in real property trades (needs more than 750)

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More-than-half test — § 469(c)(7)(B)(i)

Share of all personal services in real property trades

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Material participation in the rentals — § 1.469-9(g)

Per rental activity, or one election aggregating them all

Why this matters

Rental real estate is passive by definition (§ 469(c)(2)) — losses can't touch W-2 income no matter how large. REPS removes that per-se rule for the taxpayer. Save the verdict and the Forecaster treats every rental in the same tax year as non-passive, letting cost-seg depreciation offset ordinary income.

Keep a contemporaneous hour log — REPS is among the most-audited positions in real estate, and reconstructed logs routinely lose in Tax Court.