Real Estate Professional (REP) Status guidance

Sacramento, California
Tax, SDIRAs & Cost Segregation
1yFollow

Real Estate Professional (REP) Status guidance

Clifford Pereira
Member since 2022 · 3 posts · 4 votes

Hi, my wife and I started an Airbnb in Sacramento, CA, this year and are new to real estate investing. According to our understanding:

1) California does not recognize REP status, but we could claim it on our federal taxes, is this correct ?

2) The minimum hours required are 750 hrs, but if running a short term rental, 100 hrs is supposed to be adequate, is that still true ?

3) Is there an official IRS form where these hours are documented, or would an excel file suffice ?

Any guidance would be most appreciated, so we can be better prepared for our tax returns next year.

Thanks so much for your time !

Cliff n Marie

3Reply
100 views

Most Popular Reply

Noah Laker
Real Estate Broker · Sacramento, CA · Member since 2021 · 516 posts · 408 votes
1y

Ben nailed it. I'm a local broker and investor, and manage 100+ Airbnb properties for clients. Many of my clients are high W2 earners who are taking advantage of the "STR loophole." Very powerful strategy. Hope it goes well! Make sure you're working with a highly competent CPA!

2Reply
See this reply in the discussion

13 Replies

Jump to latestLatest
  • Ben TrageserPro Member
    Accountant · Montclair, NJ · Member since 2020 · 218 posts · 104 votes
    1y

    California does not recognize Real Estate Professional (REP) status, but you can still claim it on your federal taxes if you qualify. California views all rental activities as passive activities, regardless of whether you qualify for Real Estate Professional Status (REPS) under the federal tax code.

    You are correct in that the minimum hours required for REPS are 750 hours. However, the 100-hour rule you're referring to is not related to REPS, but rather to the material participation test for short-term rentals. This is a separate concept and does not replace the 750-hour requirement for REPS. The short-term rental (STR) loophole allows for different treatment of rentals with an average stay of seven days or less, but this doesn't change the REPS hour requirements.

    There is no official IRS form specifically for documenting REPS hours. An Excel file or other detailed record-keeping system would okay, as long as it accurately tracks your hours spent on real estate activities. It's crucial to maintain thorough documentation of your hours, as the IRS may require proof of your time spent on real estate activities if you claim REPS.

    [email protected]
    2Reply
  • Clifford Pereira
    OP
    Member since 2022 · 3 posts · 4 votes
    1y

    Many thanks Ben, appreciate your guidance ! 

    0Reply
  • Noah Laker
    Real Estate Broker · Sacramento, CA · Member since 2021 · 516 posts · 408 votes
    1y

    Ben nailed it. I'm a local broker and investor, and manage 100+ Airbnb properties for clients. Many of my clients are high W2 earners who are taking advantage of the "STR loophole." Very powerful strategy. Hope it goes well! Make sure you're working with a highly competent CPA!

    2Reply
  • Sean O'KeefePro Member
    CPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 870 votes
    1y
    Quote from @Clifford Pereira:

    Hi, my wife and I started an Airbnb in Sacramento, CA, this year and are new to real estate investing. According to our understanding:

    1) California does not recognize REP status, but we could claim it on our federal taxes, is this correct ?

    2) The minimum hours required are 750 hrs, but if running a short term rental, 100 hrs is supposed to be adequate, is that still true ?

    3) Is there an official IRS form where these hours are documented, or would an excel file suffice ?

    Any guidance would be most appreciated, so we can be better prepared for our tax returns next year.

    Thanks so much for your time !

    Cliff n Marie

    Congrats on getting started. I'm also based in California. See responses to your questions below:

    1. Correct, California is unique
    2. To qualify for REPS you need to meet a number of criteria, including (but STRs that meet IRS criteria generally don't need REPS to leverage tax benefits):
      • More than 50 percent of his/her time working in real property businesses; AND,
      • More than 750 hours of service during the year. AND
      • At least 5% owner
    3. You might want to check out this thread with sample REPS Log / Activity tracker that meets IRS guidelines https://www.biggerpockets.com/forums/51/topics/816680-real-e... 

    More guidance: You seem to be mixing up IRS Short-term rental requirements and REPS requirements to qualify to offset rental losses against non-passive income (W-2, 1099, etc). If you meet the IRS requirements for STR (e.g. Avg stay, material participation, etc.) you don't need REPS to qualify to offset W-2 with non-passive income.

    Material participation and REPS hours should still both be tracked careful to make sure you meet required hours.

    .
    .
    .

    *This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice 

    [email protected]628-241-0888
    0Reply
  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    1y

    For the STR rental loophole, which is what you appear to be referring to, you need three things:

    1. Average stay 7 days or less

    2. Materially participate in the property - this is the big one. You’re likely not hitting 500 hours (one of the tests) so you’re relying on the 100+ hour and more than anyone else’s time or substantially all the time in the activity. This means you’ll need to track the time of others and also can’t have a property manager as well. 

    3. You can’t use the property personally for more than 14 days or 10% of days rented, whichever is more. 

    [email protected]
    Brick House CPAs53 Reviews
    WebsiteView Page
    1Reply
  • Clifford Pereira
    OP
    Member since 2022 · 3 posts · 4 votes
    1y

    Thank you Noah for your advice. 
    Sean, much appreciated the thoughtful reply, and the link, very helpful indeed ! Since you are based in California, do you know of any good CPAs who are geared towards real estate investors ? We haven't event gotten our minds wrapped around cost segregation and depreciation, and our current CPA doesn’t seem to have a handle on these concepts either … 

    1Reply
  • Julio GonzalezPro Member
    Specialist · West Palm Beach, FL · Member since 2008 · 4k+ posts · 1k+ votes
    1y

    @Clifford Pereira Here's an article I wrote on REPS status that you may find helpful! Feel free to reach out if you still have questions.

    561-253-6640
    1Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    1y
    Quote from @Sean O'Keefe:

    1. Correct, California is unique

    This is a rather diplomatic statement, Sean  ;) 

    2Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    1y
    Quote from @Noah Laker:

    I'm a local broker and investor, and manage 100+ Airbnb properties for clients. Many of my clients are high W2 earners who are taking advantage of the "STR loophole."

    I would be very careful with this arrangement for your clients. They must satisfy "material participation" test for their STRs to utilize the strategy. With you managing their properties for them, it gets more difficult to meet this test. 
    0Reply
  • Noah Laker
    Real Estate Broker · Sacramento, CA · Member since 2021 · 516 posts · 408 votes
    1y
    Quote from @Michael Plaks:
    Quote from @Noah Laker:

    I'm a local broker and investor, and manage 100+ Airbnb properties for clients. Many of my clients are high W2 earners who are taking advantage of the "STR loophole."

    I would be very careful with this arrangement for your clients. They must satisfy "material participation" test for their STRs to utilize the strategy. With you managing their properties for them, it gets more difficult to meet this test. 

     They do so against my professional advice, but if their CPAs are satisfied, that’s all I need to know! 

    1Reply
  • Ashish AcharyaBusiness Member
    CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
    1y

    @Clifford PereiraYou can claim Real Estate Professional (REP) status on federal taxes but not in California, as the state does not recognize REP benefits. For REP status federally, you must meet two requirements: work 750+ hours in real estate activities and spend more than 50% of your total working hours on these activities during the tax year. This status is useful if you have long term rentals. REPS does not relate to STR's.

    For short-term rentals (STRs) with an average rental period of seven days or less, you don’t need REP status to offset losses against other income. Instead, you need to meet the material participation rules. There are 7 tests of which you must meet one of them. Meeting the 100-hour material participation rule qualifies your STR income as active as long as no one else participates more than you, This will allow losses to offset W-2 or other active income.

    While there’s no official IRS form to track hours, maintaining a detailed log is essential in case of an audit. Include dates, tasks (e.g., guest communication, cleaning, or repairs), and hours worked. You can use tools like spreadsheets or time-tracking apps for convenience. Proper documentation ensures you’re prepared to substantiate your claims.

    Federal REP or STR material participation allows you to deduct rental losses against active income, significantly reducing your tax liability. However, California treats rental income as passive regardless of REP status, so these benefits won't apply at the state level.

    This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

    [email protected]941-914-7779
    INVESTOR FRIENDLY CPA®5241 Reviews
    WebsiteView Page
    TaxMD™ | AI-Powered Tax Planning
    WebsiteView Page
    1Reply
  • Sean GrahamBusiness Member
    Investor , CPA · Detroit, MI · Member since 2016 · 582 posts · 248 votes
    1y
    Quote from @Clifford Pereira:

    Hi, my wife and I started an Airbnb in Sacramento, CA, this year and are new to real estate investing. According to our understanding:

    1) California does not recognize REP status, but we could claim it on our federal taxes, is this correct ?

    2) The minimum hours required are 750 hrs, but if running a short term rental, 100 hrs is supposed to be adequate, is that still true ?

    3) Is there an official IRS form where these hours are documented, or would an excel file suffice ?

    Any guidance would be most appreciated, so we can be better prepared for our tax returns next year.

    Thanks so much for your time !

    Cliff n Marie


    1. Correct
    2. 100 hours could work if it's more than anyone else spent on the property including non-owners
    3. Excel would suffice 

    Maven Cost Segregation Tax Advisors555 Reviews
    WebsiteView Page
    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free