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Real Estate Professional Status
An IRS designation allowing real estate losses to offset active income by meeting specific hour requirements.
Definition
Real Estate Professional Status (REPS) is an IRS designation that allows taxpayers to treat rental real estate losses as non-passive, meaning they can offset W-2 or other active income. To qualify, you must spend more than 750 hours per year in real estate trades or businesses AND more than half your total working hours must be in real estate. You must also materially participate in each rental activity (or elect to aggregate all rentals as one activity). REPS combined with cost segregation and bonus depreciation can create enormous tax deductions that shelter active income. It is particularly valuable for investors with high-income spouses or those transitioning to full-time real estate.
Related Terms
Passive Income
Income from rental properties or businesses in which the taxpayer does not materially participate.
Active Income
Income earned through active work, such as wages, salaries, or business income from material participation.
Cost Segregation
A tax strategy that accelerates depreciation by reclassifying building components into shorter-lived asset categories.
Bonus Depreciation
A tax provision allowing immediate deduction of a large percentage of qualifying asset costs in the first year.
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