How to qualify as an RE Pro?

Question

To qualify as an RE Pro you must:

1. Spend more than half of your total working hours in an RE business in which you materially participate.

2. You must work at least 750 hours per year in a qualified RE business.

So most people who have high-earning W-2 jobs outside of real estate won't qualify.

But the unique thing about RE pro status is that even if you don’t qualify but your spouse does, you can both file jointly and claim the losses from your RE investments to offset your other active income together.

It's an incredibly powerful benefit if you do meet the criteria.

Ashish Acharya · Answer

Hey Melanie! Thanks for the breakdown. As Aaron mentioned, the key here is to materially participate in your rentals, and sometimes that can be challenging to do. That said, this isn’t the only way real estate can work for you from a tax perspective. Strategies like using bonus depreciation, understanding how different types of income (passive vs. non-passive) interact with your current earnings, and knowing whether short-term or long-term rentals are the best fit for your personal situation can all make a huge difference. It’s also key to work with professionals who can look at your whole financial picture, ensure your entity structure and setup make sense, guide you through the next steps, and show you how to keep your books well-organized with thorough documentation to back up everything. Doing this upfront will set you up for success and help you grow your portfolio the right way.

Aaron Zimmerman · Answer

The key with the real estate professional status is to make sure you materially participate in your rentals. Otherwise, qualifying as a real estate professional will be for not because you won't be able to change the losses from passive to active (which goes against other active income)

William Whitley · Answer

That's an important point for those seeking to have cost segregation studies performed for accelerated depreciation. I advise my clients to make sure to talk to their CPA before going to the expense of a cost seg, because they need to make sure the depreciation expense can benefit them.

How to qualify as an RE Pro?

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