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What Is Real Estate Professional Status (REPS) and How You Can Benefit from It?

Monday, July 24, 2023

When it comes to real estate investing, every dollar counts. Whether you're just starting out or you're a seasoned investor, it's important to know about Real Estate Professional Status (REPS) and how it can benefit you. In this blog post, we'll explore what REPS is and how it can affect your tax benefits, as well as how to qualify for it.

What is REPS?

Real Estate Professional Status (REPS) is a designation offered by the IRS to real estate professionals who meet certain criteria. To qualify for REPS, you must meet two main requirements: First, you must spend more than 50% of your working hours in real estate activities, and second, you must participate in real estate activities for more than 750 hours during the tax year. This means that you must be actively involved in the real estate industry as a professional, rather than just a passive investor.

How to Qualify for REPS?

In order to qualify for REPS, you'll need to keep detailed records of your time spent on real estate activities. This can include things like researching potential properties, scouting locations, attending open houses, meeting with contractors and property managers, and more. You'll also need to make sure you're actively involved in the real estate industry as a professional, rather than just as a passive investor.

One thing to keep in mind is that qualifying for REPS can be difficult. The IRS has strict rules and guidelines. If you're ever audited, you'll need to be able to prove that you meet the requirements. That being said, if you do qualify, the benefits can be significant.

How REPS benefits real estate investors

Once you’ve established REPS, you can then take advantage of the tax deductions that come with it. One of the most significant benefits is the ability to write off all your losses related to rental properties against active income. This includes salaries, wages, and bonuses. This can provide significant tax savings and help you save money on your overall tax bill.

Finally, by qualifying for REPS, you may be able to avoid the Alternative Minimum Tax (AMT). The AMT is a tax that high-income taxpayers are required to pay. By receiving the benefits of REPS, you can offset the income that is subject to AMT, reducing your tax obligations overall.

Real Estate Professional Status is an important qualification that can benefit real estate investors in many ways. By taking advantage of the significant tax savings associated with it, you can help to maximize your investment income and save money in many ways. Whether you are just starting out in real estate investing or have been doing it for a while, taking the time to understand what REPS is and how it can benefit you is critical for long-term success. Be sure to work with your CPA, Attorney or Financial Advisor to confirm you qualify.

At Clark St, we are here to help guide you every step of the way – and if you have any questions regarding Real Estate Professional Status or anything else related to investing in real estate, please don’t hesitate to reach out!


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