Make sure to consult with your CPA about which hours can be used before starting your hours log.Here are the indicators that put you at risk of an Audit that the IRS looks at with this strategy::(Source)Real Estate ProfessionalIf you don’t have the ability to invest these kinds of hours into a property, you can become a Real Estate Professional under the tax code, or have a wife or husband become a Real Estate Professional, which then will turn your Passive Losses into Active Losses on your real estate.To become a Real Estate Professional, you need to have:(Source)As long as you work 750 hours in real estate (14.42 hours a week excluding vacation), AND half your time is spent on real estate activities (so you could still do other work for 12-13 hours a week), you can qualify as a Real Estate Professional.

The 750 hour requirement is a high bar; it’s essentially a part time job, which can be tough to meet with just two properties (also high audit area and need meticulous records).Also worth highlighting: time spent by others (like property managers) doesn’t count toward your hours unless it’s under your direct supervision and incidental to your own efforts (per IRS regs).

With REPS audits increasing, the safest route is to work with a CPA.

It’s a strong strategy but also full of pitfalls, so you need your CPA’s guidance on what hours count toward participation and how to stay compliant, especially in case of an audit.

Promises were made for audit results by late October.

To address this: Audit Expenses: Drill down into each expense category per property.

Here’s an excerpt (see below) from the IRS Audit Technique Passive Activity Guide on this rule, which covers more than just the 100 hours. 

Use of Public Testimonies: Norada Capital Management uses past, satisfied investors, not audited financials or any evidence that corroborates their business model is a tactic used by all of us who sadly were running Ponzi schemes.10.

DON'T play Audit lottery

Every step of the process — underwriting, servicing, legal structuring, due diligence (auditing the loan files), and trustee oversight — is performed on a per-loan basis.