Real Estate Professional Status (REPS) Calculator

REPS converts your rental property losses from "passive" — useless against your W-2 or business income — to "ordinary," fully deductible against any income. For a two-income household with $60K of annual rental losses and a combined 37% marginal rate, qualifying is worth $22,200/year in federal taxes alone. This calculator runs the two-part statutory test and shows what qualifying is worth to you specifically.

The two-part REPS test — exactly how it works

What REPS changes

Under IRC § 469, rental activities are "per se passive" — regardless of how many hours you spend, rental losses can only offset other passive income. If your rentals generate $40K of losses through depreciation and expenses, and you have a $400K W-2 salary, you cannot deduct those losses. They accumulate as suspended carryforwards on Form 8582 until you either sell the property or have passive income to absorb them.

REPS under IRC § 469(c)(7) removes the "per se passive" label from your real estate activities. Your rentals become non-passive, and losses flow directly to your 1040 against any income. For high-earners, this is one of the largest legitimate tax levers in the tax code.

Test 1: The 750-hour threshold (IRC § 469(c)(7)(B)(i))

You must spend more than 750 hours during the tax year in real property trades or businesses in which you materially participate. Qualifying activities include:

• Managing rental properties (tenant screening, lease negotiation, maintenance coordination, bookkeeping)
• Construction and development activities
• Real estate brokerage (if you hold a license and actively transact)
• Property acquisition and disposition work
• Leasing activities

Does NOT count: Investor-level activities (reading trade publications, attending seminars as a passive investor, reviewing statements). Also does not count hours in real property activities as an employee unless you own more than 5% of the employer.

750 hours = roughly 15 hours/week year-round. A full-time landlord managing 5+ properties easily clears this. A physician who "manages" 2 rentals on weekends typically does not.

Test 2: The majority-of-services test (IRC § 469(c)(7)(B)(ii))

More than half of your total personal service hours for the year must be in real property trades or businesses. This is the test most would-be REPS filers fail: if you have a full-time W-2 job (1,800+ hours), you'd need 1,801+ hours in real estate — which is essentially impossible while holding full-time employment.

Material participation — the third requirement

Even if you pass both hour tests, you must still materially participate in each rental property individually (unless you elect to aggregate all properties into a single activity under Reg. § 1.469-9(g)).¹ Material participation uses one of seven tests from Treas. Reg. § 1.469-5T:

• 500+ hours in the activity (Test 1 — clearest)
• Substantially all participation in the activity is yours (Test 2)
• 100+ hours and at least as much as any other person (Test 3)
• Significant participation activity + total sig. participation exceeds 500 hrs (Test 4)
• Material participation in 5 of prior 10 years (Test 5)
• Personal service activity, material participation any 3 prior years (Test 6)
• Facts and circumstances — all relevant facts (Test 7, rare)

The aggregation election under Reg. § 1.469-9(g) lets you group all rental properties into a single activity for material participation purposes. This makes it far easier to clear 500 hours when spread across multiple properties. The election is made on the tax return and is binding on future years.

What non-REPS investors get: the $25K allowance

Under IRC § 469(i), non-REPS investors who "actively participate" in their rentals (a lower standard — making management decisions, approving repairs) can deduct up to $25,000 of rental losses against non-passive income — but only if MAGI is below $150,000. The allowance phases out dollar-for-dollar at $0.50 per $1 of MAGI above $100,000:²

• MAGI under $100K: full $25K deduction available
• MAGI $100K–$150K: partial allowance ($25K − ($0.50 × (MAGI − $100K)))
• MAGI over $150K: zero allowance — all losses suspended

Most active real estate investors earning meaningful W-2 income exceed $150K MAGI. Their losses accumulate on Form 8582 indefinitely until sale or REPS qualification.

Documentation — the audit defense requirement

REPS is a high-audit-risk position. The IRS challenges it aggressively because it converts large deductions from passive to active. You need contemporaneous records proving your hours. "Contemporaneous" means recorded at the time, not reconstructed at audit time.

• Keep a contemporaneous log: date, property, activity description, hours. A Google Sheet or time-tracking app (Toggl, etc.) works. Courts have rejected logs clearly reconstructed from memory months later.
• Keep management records: lease agreements, maintenance invoices, contractor communications, tenant correspondence — evidence of active involvement.
• If your spouse is qualifying, the records must reflect their hours, not yours.
• The aggregation election (if made) should be documented in the return and maintained consistently.

Sources

1. IRC § 469 — Passive Activity Losses and Credits. Subsection (c)(7) defines Real Estate Professional Status; subsection (i) covers the $25K allowance.
2. IRS Publication 925 — Passive Activity and At-Risk Rules. Explains the $25K allowance phase-out ($100K–$150K MAGI) and active vs. passive vs. REPS rules.
3. Treas. Reg. § 1.469-9 — Rules for certain rental real estate activities. Defines qualifying hours, the 750-hour test, majority-of-services test, and the aggregation election.
4. Treas. Reg. § 1.469-5T — Material participation. The seven-test framework for material participation in each activity.
5. IRS Form 8582 — Passive Activity Loss Limitations. Where suspended losses accumulate; filed annually to track carryforwards.

REPS rules cite IRC § 469(c)(7) as enacted; no material changes from OBBBA (July 2025), SECURE 2.0 (2022), or Social Security Fairness Act (2025). The 750-hour threshold and majority-of-services test are unchanged since their codification. Values verified April 2026.