REPS hours vs Material Participation Hours

Tax, SDIRAs & Cost Segregation
4yFollow

REPS hours vs Material Participation Hours

Josh Prihoda
Member since 2020 · 7 posts · 1 vote

What is the difference between REPS hours and material participation hours? My understanding is that material participation are hours that you are actively doing for your properties (day to day and trying to improve them). Is there a separation between REPS hours, where they are hours in real estate that count that deal with properties you did not acquire? My main concern is researching properties online (looking for properties to acquire). Searching online 1-2 hours per day would be 400-600 hours in research alone. Could I add that to my 500-600 material participation hours to be over the 1000 hours I need to be over my W2 job that I had the first half of the year?
It seems like some CPAs say yes and some say no. Any input? Thanks

0Reply
50 views

Most Popular Reply

Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
4y

@Josh Prihoda

Hours looking at properties do not count.

[email protected]917-280-8544
Basit Siddiqi CPA4.979 Reviews
View Page
2Reply
See this reply in the discussion

4 Replies

Jump to latestLatest
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    4y
    Originally posted by @Josh Prihoda:


    What is the difference between REPS hours and material participation hours? My understanding is that material participation are hours that you are actively doing for your properties (day to day and trying to improve them). Is there a separation between REPS hours, where they are hours in real estate that count that deal with properties you did not acquire? My main concern is researching properties online (looking for properties to acquire). Searching online 1-2 hours per day would be 400-600 hours in research alone. Could I add that to my 500-600 material participation hours to be over the 1000 hours I need to be over my W2 job that I had the first half of the year?
    It seems like some CPAs say yes and some say no. Any input? Thanks

    Research hours do not count as material participation. An individual qualifies as a real estate professional for the tax year if [IRC Sec. 469(c)(7)(B)]—

    a. more than 50% of the personal services performed by the taxpayer in all trades or businesses during the tax year are performed in real property trades or businesses in which the taxpayer materially participates;  The rental or any other activity that you do not materially participate in cannot be counted. and

    b. the taxpayer performs more than 750 hours of service during the tax year in real property trades or businesses in which the taxpayer materially participates., the rental or any other activity that you do not materially participate in cannot be counted.


    Note: For both criteria described above, by combining activities into one real property trade or business, the more likely the combined hours spent on the grouped business will satisfy the material participation requirement. 

    Material participation plays a role in two distinct aspects of this rule for real estate professionals.

    • First, when determining whether a taxpayer qualifies as a real estate professional, only real property trades or businesses in which the taxpayer materially participates are counted. (spouse participation is counted for MP)

    • Second, once it is determined that a taxpayer qualifies as a real estate professional, nonpassive treatment is available only for rental real estate activities in which the real estate professional materially participates. Accordingly, a taxpayer must pass two material participation hurdles before a rental activity receives nonpassive treatment. The material participation tests under these special rules for real estate professionals are the same as those that apply for purposes of classifying other activities as passive or nonpassive—i.e., the taxpayer is considered to have materially participated in an activity by meeting one of the seven tests (or three tests for a limited partner interest) outlined in section.
    [email protected]941-914-7779
    INVESTOR FRIENDLY CPA®5240 Reviews
    WebsiteView Page
    TaxMD® | Tax Planning Software
    WebsiteView Page
    2Reply
  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    4y

    @Josh Prihoda

    Hours looking at properties do not count.

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
    View Page
    2Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    4y

    Any CPA's who say that time counts are incorrect. 

    It's been clear that research doesn't qualify as qualifying hours 

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
    Kolodij Tax & Consulting
    WebsiteView Page
    1Reply
  • Josh Prihoda
    OP
    Member since 2020 · 7 posts · 1 vote
    4y

    Thank you all for replying. I was worried about that, but appreciate all the insight.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free