Real Estate Professional Status – Can I Use My Husband’s Passive Losses?

Question

Hi BP Community,

I’m looking for some clarity on the tax implications of becoming a Real Estate Professional.

My husband is a high W-2 income earner, and I’m considering leaving my job to qualify as a Real Estate Professional (REP) to take advantage of potential tax benefits. He currently owns 4 rental properties that he purchased before we were married, and they are still titled solely in his name.

My question is:

If I qualify as a Real Estate Professional, and we file jointly, would I be able to materially participate in his properties — and, if so, would we be able to use the passive losses from those rentals to offset his W-2 income?

Additional questions:

• Would it be beneficial for him to sell 1% ownership of those 4 properties to me, so I’m technically a co-owner and can more clearly establish material participation?
• 
• Going forward, we plan to form an LLC with 50/50 ownership to acquire new investment properties — how will that affect our ability to use losses?
• 
• What about different types of properties like turnkeys, syndications, or other passive investments — do those losses count toward what we can use to offset W-2 income if I qualify as a REP?

Would love to hear from anyone who’s navigated this or has insight into how the IRS views ownership and participation in these scenarios.

Thanks in advance!

Michael Plaks · Answer

@Sara Murphy

Before I answer your specific questions, let me comment that I cannot agree with quitting a job if it is done for tax benefits. If you have other reasons to quit your job, then it's a different conversation, and then tax benefits can come as a bonus. Icing on the cake, not the cake.

To illustrate my position, you know who really should quit their job for tax benefits? Your husband! Without all this income of his your taxes will go waaaayyy down. :) See what I mean? Taxes cannot drive your life decisions.

One other very important point: we don't have any numbers on your overall tax situations, especially on your husband's rentals. Without this information, we cannot estimate how much tax benefits there is to go after, to begin with. Maybe a lot, and maybe not so much. Figuring this out should come first, before going for REPS.

And last thing: it may not be easy for you to qualify for REPS with these 4 properties if they all have stable long-term tenants. But this is also a different topic.

To your questions:

- yes, you can work on his properties

- no, your ownership is not required

- your potential LLC will not save you any taxes

- but an LLC can hurt you in more than one way, depending on your state

- LLCs are created for legal liability reasons, not for tax reasons

- passive investments will not help you tax-wise, most likely, but it's a topic too broad to address in a forum post, it's for a tax professional consultation. Here is a long and technical post on this topic, however it's for general education and not to draw conclusions for specific situations, as your mileage will likely vary:
https://www.biggerpockets.com/forums/51-tax-legal-issues-con...

- the most common way to combat high W2 taxes using real estate is with short-term rentals (STRs), but it is also a separate topic. You can start here:
https://www.biggerpockets.com/forums/51/topics/1122635-the-s...

Sean O'Keefe · Answer

There are other real estate activities (e.g. real estate agent, property management, construction, etc.) that you can do, in addition to rentals, that count toward REPs hours. I’d explore this with your current CPA since this is what you’re paying them for and should be helping you with.

Aaron Zimmerman · Answer

@Sara Murphy - to add, I think if you're quitting your job, you will want to consider a career in real estate. It is much easier to qualify for real estate professional status when you have another business (I.e. realtor) and then find a way to materially participate in all the rents. You would basically need to work on the properties for 187.5 hours per property for the year to qualify.

if you are a realtor and assuming you meet the reps requirements, you would need to materially participate which is a much lower bar to clear.

Josh L. · Answer

As usual, do not let taxes drive the decision (sounds like you have other good ones already). Using the 37% marginal rate based on the income you disclosed, the tax savings on $30k of passive losses would be about $11k. You just have to decide if meeting the REPS hurdle of 750 hours is worth it for those savings. One caveat, As @Basit Siddiqi noted, those losses may not convert if you have not obtained REPS status, though not all the facts are clear here. It sounds like you already have a CPA in your corner, so definitely discuss the specifics with them.

Jason Malabute · Answer

Yes, you can work on your husband’s properties as a Real Estate Professional and that would count toward material participation. Your ownership is not required for this purpose.

Forming an LLC will not save you taxes—LLCs are generally created for legal liability protection, not tax benefits.

Sara Murphy · Answer

Thanks @Michael Plaks & @Sean O'Keefe— your insights are incredibly helpful and much appreciated.

We’ve been working with a CPA who recommended we explore Real Estate Professional (REP) status, given our current and projected real estate activity.

• My husband earns $500K W-2, and I currently earn $40K W-2. He will cover our $15K/year family health insurance if I step away from my job.
• We have three young kids, and being home with them — while also focusing on our real estate — would give our family more flexibility.
• For 2024, we have about $30K in passive losses that will roll into 2025.
• Our plan is to continue acquiring properties and utilize cost segregation to accelerate depreciation.
• Most properties in our area range from $400K–$600K, so each acquisition will likely generate a meaningful paper loss with bonus depreciation.

does this sound like a sound strategy?

Ashish Acharya · Answer

@Sara Murphy If you qualify as a Real Estate Professional (REP) and file jointly, you can potentially use rental losses to offset your husband’s W-2 income, but ownership and participation details matter:

•

Basit Siddiqi · Answer

Suspended passive losses will retain their characteristics of passive losses.
Claiming real estate professional status will turn passive losses into active losses for those losses in the year that you claim real estate professional status.

However, it will not convert prior passive losses to active.

Best of luck

Michael Plaks · Answer

Lifestyle-driven decisions is exactly what I was advocating for. The concept makes sense. The implementation matters, and the numbers matter.

But since you have a CPA to work with, you have someone who should guide you through this. Otherwise you might need someone else who can guide you. Best luck.

Rohullah Sharifi · Answer

1. if you meet "Material Participation Test"

2. maintain proper record

3. involvement in STR

4. May register a business as partnership

5. Should qualify as REP

6. Losses can be claimed against active income

7. But only REP without rental might not lead to losses

Real Estate Professional Status – Can I Use My Husband’s Passive Losses?

Real Estate Professional Status – Can I Use My Husband’s Passive Losses?

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