The Real Estate Professional (REP) Loophole: What It Is and How to Qualify in 2025

The IRS usually considers rental income “passive,” meaning you can’t use rental losses to offset your active income (like your salary or business profits). But if you qualify as a Real Estate Professional, you can. That means your depreciation, repairs, mortgage interest, and even paper losses can reduce your taxable income—sometimes by tens or hundreds of thousands.

You must meet both of these IRS tests:

1. 750-Hour Rule
   You must spend at least 750 hours per year in real estate activities (rentals, development, acquisitions, brokerage, property management, construction, etc.).
2. More Than 50% Rule
   More than half of your total work hours must be in real estate. So if you work 1,800 hours at your day job, you’ll need over 1,800 real estate hours—not easy unless you’re full-time in real estate.

What Counts Toward the 750 Hours?

These activities qualify:

• Property acquisition & underwriting
• Managing or supervising construction
• Hosting and communicating with STR guests
• Lease negotiations
• Renovation and repair oversight
• Showing properties to tenants
• Bookkeeping (if done by you)
• Investor management (for GPs)

What doesn’t count:

• Education or training hours
• Investor research or market reading
• Passive oversight with no involvement

Can You Combine STR and REP Status?

Yes—but strategically. STR income is often non-passive under the 7-day rule, meaning it can generate losses without REP status. However, combining STRs and long-term rentals under REP can supercharge your deductions if done right.

If you're actively involved in your rentals—or want to be—it’s time to take your tax strategy seriously. REP status is one of the most powerful tools in the tax code for investors, but it has to be done right.

Want to know if you qualify—or how close you are?

Let’s review your hours, optimize your structure, and put more money back in your pocket.

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