real estate professional (REP) status

[Angie Yang]

If I become a part-time real estate agent and have no other W-2 job, would I be able to qualify for real estate professional status? If it's possible, what type of RE agent activities might count towards the 750 hours required? Thanks!

[David M.]

@Angie Yang

You probably could.  Usually the main sticking point is spending more than half your working time in real estate related activities.  For example, if you had a full time job (2000 hours per year), you'd have to justify that you did 2001 hours doing real estate related activities.

See the IRS' page regarding activities:  https://www.irs.gov/publications/p925#en_US_2022_publink1000...

The other question is why are you have so much passive losses to bring onto your main 1040?  Are you not making money?  If so, then the issue is your investments, not your filing qualificiations.  You might be making limited "cashflow" but the depreciation is making you look negative --- that's normal.

Just make sure you have enough income to offset.  If you are in a low tax bracket, it really may not be worth claiming.  Be sure to consult a qualified professional.

Happy to chat.  Hope this helps.  Good luck.

[Lane Kawaoka]

Being an agent has nothing to do with reps because you need active participation in your real estate portfolio. Not buying/selling for others like an agent would do.

Think more like get a rental or two or a short term rental to get those hours.

[Glen Wiley]

REP has nothing to do with whether you are an agent. To become an REP you have to:
- spend 750hrs or more in real estate investing activities (looking at zillow, watching BP youtube videos, actual property mgt, etc)
- spend more time on real estate activities than any other single area (like a w2 job)

My wife is a REP while I work at a W2, this allows us to take deductions from passive investing against our active income and saves us thousands of dollars every year on taxes.

[Angie Yang]

@David M.@Lane Kawaoka @Glen Wiley

Thank you for the responses! What if I am a part-time agent to qualify for the REP status via mainly RE agent activities (helping others in buying/selling houses) and then also have a couple of investment properties on the side that I manage myself to attain passive loss from those properties (via depreciation)? 

Reason I ask about RE agent is because if I only have a couple of investment properties on the side (LTR) I don't think I can get 750 hours from managing those solely. And I'm not at the point where I want to purchase say 5-10 units yet. 

[David M.]

@Angie Yang

Re-reading the IRS guidance, the agent duties could fall in as part of "real estate trades or business."  But, you need to be at least 5% owner for it to count.  But, since agents are independent contractors, I never checked into how that applies.

I don't track after this too much.  There is also I think the 500 hr material participation requirement for the $25k PAL to take that onto your1040.  That is specifically on your rentals, not overall.  But, I didn't think it applied to REPS.  some people mix them together (which only makes me remember less  lol)

And like i said, it may sound nice to bring deductions to your 1040, but in the larger scheme it may not be a good idea or a sign of something else is wrong.

Definitely consult a qualified professional about your situation. 

[Lane Kawaoka]

That depends on your discussion with your CPA who signs off on your return. Finding these open minded CPA is the hard part.

[Basit Siddiqi]

If you do get to claim real estate professional status, you may potentially be able to offset the rental losses(if you have rentals) against your real estate agent income from an income tax perspective.
You may still need to pay self-employment taxes.

[Mohammed Rahman]

Hey @Angie Yang - this is a good question to ask the person that does your taxes. 

I've found, in multiple conversations with my CPA, that most people will have a hard time "proving" that they're working the required number of hours in real estate to qualify for REP status.

The reasoning being that if you have a full time job that takes 40hrs a week, how many hours a week are you actually able to devote to your "real estate" profession. 

Speak to your accountant or CPA, they'll be able to guide you on this better than anyone else in the comments since they will understand your financial situation better. 

[Nate Meeker]

@Angie Yang - it is possible, but you also have to materially participate. How many rentals do you have? Are they long or short term? The grouping election may benefit you.

[Josselyn Jorge]

Hi Glen, would you be able to provide me with a sample of what your log looks like? Thanks!