Qualifying for Real Estate Professional Status: A Detailed Inquiry

Qualifying for Real Estate Professional Status: A Detailed Inquiry

Member since 2023 · 36 posts · 20 votes

I'm employed as a W2 computer engineer, while my wife works as a W2 software engineer. We have one short-term rental (STR) and two long-term rentals (LTRs). I'm curious about my eligibility for real estate professional status for tax purposes, given my active involvement in the following ways:

  1. I actively manage our one STR and the two LTRs (with plans for cost segregation for all three properties).
  2. I handle property management directly, without a property manager.
  3. I have already dedicated 750 hours to real estate activities this year.
  4. I'm even open to taking the realtor exam if it aids my qualification as a real estate professional.
  5. Almost daily (and without fail on weekends), I engage in various real estate tasks: visiting our property or properties, tending to the yard, monitoring and adjusting short-term rental pricing, managing tenant and guest expectations, scheduling cleaning and maintenance, caring for the lawn, and more.

My primary question is whether the activities mentioned above are sufficient to qualify me for real estate professional status, or if additional steps are required for eligibility.

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Michael SmytheBusiness Member
Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
3y

If you have a full time W-2 job, your chances of qualifying as a Real Estate Professional are basically zero.

Logical Property Management4.9446 Reviews
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  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    3y

    If you have a full time W-2 job, your chances of qualifying as a Real Estate Professional are basically zero.

    Logical Property Management4.9446 Reviews
  • Member since 2023 · 36 posts · 20 votes
    3y
    Quote from @Michael Smythe:

    If you have a full time W-2 job, your chances of qualifying as a Real Estate Professional are basically zero.


    But what if I have a W2 job I do about 7-8 hours (8am-3pm/4pm) a day. But I spend after work hours (5pm-12am) on real estate activities. And weekends (Sat-Sun to catch up on weeks I worked less on real estate). Can I qualify as a REP?

  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    3y

    The IRS will still NOT allow it.

    Logical Property Management4.9446 Reviews
  • Investor · Miami · Member since 2021 · 23 posts · 13 votes
    2y

    You can use your short-term rental for non-passive losses. You do not have to be a real estate professional to turn losses on rental properties non-passive. This is what you want because non-passive losses can offset non-passive income including W-2 or active business income.  By meeting one of the seven material participation tests outlined in the tax code, you can turn losses from your short-term rental property non-passive. The three most common tests for short-term real estate investors are:

    • Spending more than 500 hours on the short-term rental business.
    • Performing substantially all the activities for the STR business.
    • Spending more than 100 hours on the activity, with no other individual spending more time than you.

    Once you meet one of these tests, and your short-term rental is excluded from the definition of rental activity, then it is considered non-passive. 

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