Trying to Qualify as a Real Estate Professional (REP) – Does My Setup Work?

Question

I’m working on structuring my hours and documentation to qualify as a Real Estate Professional for tax purposes. Here’s my current situation:

• Bar + Property – I own the bar business and the building. I actively manage both operations and property issues (maintenance, vendor supervision, repairs, budgeting tied to ops).
• Auburn Retail Unit – I’m the landlord, property manager, and broker. I market, negotiate leases, handle maintenance, and directly coordinate vendors/tenants.
• Kent Retail Center – There’s a third-party PM, but I’m still the active manager. I set scope, approve bids, direct repairs, and handle leasing/tenant matters. PM mostly acts as organizer/accountant/secretary.
• West Seattle 5-Unit Development – I’m the project lead. I manage permits, city communication, site visits, GC coordination, and materials sourcing. Demo is starting now and I’ll be onsite 2–3 hrs/day, 3x/week.
• House w/ Basement Rental – I live upstairs, rent out the basement unit. I spend ~1–2 hrs/week handling tenant issues (repairs, coordinating contractors, supervising, upkeep for their space).

Questions for the group:

• Do all of these activities count toward REP hours? (Especially the house basement rental, since it’s part personal residence and part rental.)
• For the Kent property, is it safe to count my hours as material participation even though I use a PM, if I’m the one making the decisions and approvals?
• Any risks with aggregation election (treating all rentals as one activity under Reg. §1.469-9(g)) in my setup?
• How do forum members track and separate “investor-type” activities vs. operations to make logs audit-proof?

I’m targeting ~15–17 hrs/week (750–880 hrs/year). Development site visits give me 6–9 hrs/week, the rest from active management across Auburn, Kent, the bar property, and the basement rental.

Would love feedback if I’m on the right track and if there are blind spots I should tighten up.

Josh Lewer · Answer

Rather detailed even citing Regs :) See italics.

Do all of these activities count toward REP hours? (Especially the house basement rental, since it’s part personal residence and part rental.)

I would consider all but (1) Bar and (2) non-rented house portion to be countable hours for Taxpayer’s Real Property Trades or Businesses for REPS hours.

I’ll still give my thoughts but first blush is I don’t think you will get there as (1) you're already close to the threshold already and you’re including the bar hours, which I would assume takes a decent bit of time, which should be excluded as not a real property trade or business. Further, even using your hours presented it wouldn’t be greater than the 1st quantitative test for REPS. > Do the hours represent more than one-half of the total personal service hours the taxpayer performed during the year in all trades or businesses?
I’m assuming a working year of 2000 hrs and so I’m showing you with ~1000+ going somewhere else. But that’s an assumption that you have other hours somewhere.

For the Kent property, is it safe to count my hours as material participation even though I use a PM, if I’m the one making the decisions and approvals?
This one is tough as IRS seems to cast doubt when you have a property manager. Some of the language they use is to the effect “there’s not much left to do” but would depend.

Any risks with aggregation election (treating all rentals as one activity under Reg. §1.469-9(g)) in my setup?
I think you would have to even given selling implications but you might not qualify anyways under previous points

A lot here so as usual depends on “peeling” back everything based on the facts and circumstances and really walking through your scenario.

Ryan Spath · Answer

I’m not a CPA – just sharing from my own experience and what I’ve seen others do.

Most of what you listed (leasing, vendor oversight, GC coordination, tenant calls, site visits) should count as REP hours. For the basement rental, only the tenant’s portion qualifies, not your personal space. On the Kent property, your hours should still count since you’re making the management decisions — the PM is more of an admin.

Aggregation election can simplify things, but it does limit flexibility if you sell a property. Also, remember: investor-type work (reading financials, market research) doesn’t count, but operational work does — so keep good logs with property, task, and hours.

REP is one of the most audited areas in real estate, so I’d strongly recommend running all of this past a CPA who specializes in REP to make sure your hours and approach will hold up.

Ashish Acharya · Answer

@Theodor Chung For REP purposes, drive time can count toward your hours if driving from home to your “main office/principal place of business, but only if it’s directly related to your real estate activities.

For example:

• Driving to a rental property for management, repairs, showings, or inspections does count.

It’s important to log the time and purpose of each trip so you have records if the IRS ever questions your REP status.

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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.

Theodor Chung · Answer

does drive time count from one location to another?

Ashish Acharya · Answer

@Theodor Chung

You’re on the right track. Hours spent on leasing, marketing, maintenance, development, and vendor supervision all count. Time on your bar business does not, unless there’s a separate rental arrangement. For your basement rental, only tenant-related work qualifies. If you’re making the decisions and your property manager is just carrying them out, those hours count too.

Be careful with the aggregation election under Reg. §1.469-9(g). It helps with material participation but is permanent. Keep detailed, contemporaneous logs of real tasks such as site visits, permits, and repairs, and avoid investor-type hours like research or strategy. At 15–17 hours per week plus your development work, you’re in a solid position. Just keep bar time and personal home time out of your REP log.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.

Rohullah Sharifi · Answer

Your activities qualify under the material participation test; however, it is essential that you maintain proper documentation of your hours to substantiate this status. If your spouse also participates, it further strengthens the position. By meeting the material participation requirements, your income shifts from passive to non-passive, which may provide more favorable tax treatment.

Additionally, you may consider adding a short-term rental (STR) to your portfolio. When paired with a cost segregation study on a property you intend to hold long term, this strategy can significantly accelerate depreciation deductions and enhance your overall tax benefits.

Aaron Zimmerman · Answer

To add to what Josh and Jason have said, you'll want to create a time log of your hours. Hours spent towards your bar and personal part of your house hack will not count.

How many hours are you working at your bar?

There could be a potential opportunity to aggregate the bar and the property as a self-rental which could unlock some potential deductions

Jason Malabute · Answer

Not all of your hours will count toward Real Estate Professional status. You can count the time spent on your rentals and development work, but not the bar business or the personal portion of your house. You’re already close to the required hours, but remember the IRS looks at whether your real estate hours are more than half of your total working time. For the Kent property, your hours can qualify as long as you’re making the decisions, though IRS guidance can be strict when a property manager is involved. Aggregating rentals under one activity is generally allowed, but the real issue is whether you have enough solid hours documented to back up your claim. Ultimately, it comes down to your specific facts and documentation.

Trying to Qualify as a Real Estate Professional (REP) – Does My Setup Work?

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