If you’ve been in real estate for a while, you’ve probably heard people talk about Real Estate Professional Status (REPS)— but most investors still don’t fully understand what it means or how powerful it can be.Here’s the simple version:If you qualify for REPS, the IRS allows you to treat your rental income and losses as active instead of passive.That means depreciation, cost segregation, and other real estate losses can actually offset your other income — even W-2 income.For full-time investors or spouses who manage their properties, that can mean tens of thousands of dollars in tax savings every single year.To qualify, you need to:- Must materially participate in their rental activities.- Spend over 750 hours a year in real estate activities.- And more than half of your total working time must be in real estate.It’s not for everyone — and you have to document it properly — but for serious investors, it’s one of the most valuable tax tools out there.Most people think wealth in real estate comes from appreciation and cash flow…But the biggest gains often come from how you use the tax code.Curious — have you or your spouse ever tried to qualify for Real Estate Professional Status?

We get snippets, but not the full extended logic.Here are the basics:Cost Segregation —-> Losses, which either offset your W2 income, or are carried forward as Net Operating Losses.Cost Seg.

You’re basically pulling future depreciation into this year.Two things to watch:Make sure the rentals are truly rental activities for passive vs nonpassive rules — big losses don’t help if you can’t use them.Get the study done by someone who actually knows residential rentals, not just big commercial.So: yes, you can do it now, yes, you can catch up, but no, you generally don’t get to go back and grab the old-year bonus as if you’d done the study in 2020.

That means their share of the gain/loss could be based on the original purchase price, which can create a split basis situation between you (inheriting your share at stepped-up FMV) and them (keeping their older basis).On the other hand, your portion that was inherited at your parents’ passing would get a step-up in basis to the fair market value at that time.

We ended up going way over budget and turning it into a single family residence and selling at very little profit due to loss in labor.

The financial viability of the strategy is maximized when a Cost Segregation Study can allocate a high percentage of the purchase price to short-life assets (like furniture and fixtures), leveraging the current 100% Bonus Depreciation to create a substantial "paper loss" in the first year.To use the 100% Bonus Depreciation against your 2025 W2 income, the STR and its eligible assets must be fully "placed in service" by December 31, 2025.

I'm in the process of doing a cost seg for a park we bought in Omaha, NE this year, and our investors will get about 150% of their investment in passive losses for 2025.  

That's too big a gap for me; I'd have to just eat the current loss and move on.

Consider meeting with a real estate-focused CPA to ensure you capture every deduction possible — including depreciation schedules, LLC expenses, and passive income losses that can offset other income.A little preparation now can make tax season smoother — and keep more of your hard-earned rental income in your pocket.

I recommend you find a CPA that understands how to do taxes for real estate investors.Generally S-Corps are pass-through entities, so I suspect his losses could off-set your W2 income.