Obtain Real estate professional status while house hacking with ADU?

Question

Hi everyone,

I'm a house hacking rookie. I intend to get a single family residence, add an ADU, live myself in the residence and rent out the ADU as a studio apartment long term.

I have checked my city's ADU laws and long term renting is permitted.

Question : can I obtain the REP status while maintaining the ADU while it is in my primary residence? (Assuming I meet REP criterias).

Thanks

Bill Hampton · Answer

@Mayank Jain

Do you have a W2 job or do you own a business that is not involved in real estate? If yes, it will be difficult for you to qualify for REPS. To qualify you would have to spend more hours managing the ADU than you do working on your W2 or your business. Please consult with an accountant specializing in real estate taxation.

Good luck.

Dan H. · Answer

I am not a CPA or tax expert.  Check with your trusted tax professional.

I recognize this is not answering your question but with a single unit, I believe if you declare real estate professional it will invite scrutiny.  This is because one ADU unit should not require a 1000 hours even with a rehab.

I recommend waiting until your unit count is higher.  Two rehabs in a year along with managing a few units could hit the 1000 hours.

Also the 1000 hours has to be more hours than you work any other job.

Good luck