{"id":110959,"date":"2019-05-17T11:00:46","date_gmt":"2019-05-17T17:00:46","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=110959"},"modified":"2021-03-16T14:53:59","modified_gmt":"2021-03-16T20:53:59","slug":"real-estate-professionalcost-segregation","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/real-estate-professionalcost-segregation","title":{"rendered":"Want to Pay Less in Taxes? You Need This Designation (& May Already Qualify!)"},"content":{"rendered":"

Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and\/or other advisor regarding your specific situation.<\/span><\/em><\/p><\/blockquote>\n

For those starting out in real estate investing, you may or may not have heard of the real estate professional (REP) designation. If you\u2019re a seasoned vet, you\u2019ve probably heard of this advantageous tax classification and are perhaps even already taking advantage of it! <\/span><\/p>\n

There\u2019s a good amount of information out there on what a REP designation is and who can qualify. However, for the sake of this blog post, I am going to go a little deeper and talk about how a REP designation affects cost segregation<\/a> “losses.”<\/span><\/p>\n

Whether you qualify or not, it is important for you to understand how cost segregation and the REP designation can go hand in hand. After all, as your portfolio increases (which I assume is your ultimate goal), so will your likelihood of being able to effectively use cost segregation as a REP. <\/span><\/p>\n

For those who want a recap of what the REP designation entails, check out the next section. But if you already know what it\u2019s about, skip to “The Real Estate Professional & Cost Segregation.”<\/span><\/p>\n

\"Realtor<\/p>\n

What is a Real Estate Professional Designation?<\/h2>\n

REP is an IRS tax classification designed for those who work a certain number of hours each year within the real estate business. <\/span>Having the REP designation is advantageous because you can deduct all depreciation and losses against income reported on your 1040. <\/b><\/p>\n

Imagine the amount you can save on taxes as a REP! (If you don’t have the best imagination, I can tell you it’s a lot.)<\/span><\/p>\n

On the flip side, those without a REP designation cannot deduct depreciation and losses from their ordinary income. For example, if Joe the investor owns three single family residences, is a W-2 employee, and does not qualify as a REP by the IRS\u2019s standard, he <\/span>cannot<\/em> deduct his rental properties’ depreciation and losses against his W-2 income.<\/span><\/p>\n

Related: <\/strong><\/em>The Ultimate Guide to Real Estate Taxes & Deductions<\/a><\/em><\/p>\n

How to Qualify as a Real Estate Professional<\/h3>\n

In order to qualify as a REP, you must:<\/strong><\/p>\n

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  1. Spend more than half your work time in a real estate business or businesses.<\/span>\n