Who Qualifies for IRS-REPS - Real Estate Professional Status?

Question

IRS-REPS Status - What qualifies as Real Estate Professional?

I have reviewed multiple sites blogs posts etc about REPS and found very detailed information, but one area still remains less clear for me. There are 11 categories it gives for REPS qualification. I get all the other stipulations, but what are some examples of jobs that have allowed qualifications for REPS? For example, would spending 750+ hours being a wholesaler count? Would someone who stages properties and does real estate photography count? Does being a property inspector count? Would someone who does mobile notary for closings count? CPA’s and Mortgage Lenders don’t count, but Appraisers and of course real estate agents do according to case studies. Anyway trying to build a better list of examples of people that have actually qualified.

Looking for examples that qualify or examples in these 11 categories below of “real property trade or business is any real property trade or business that is involved in:”

- development, redevelopment,

- construction, reconstruction,

- conversion,

- Acquisition, brokerage

- Rental, leasing

- operation, management,

Trying to gain a more clear and detailed understanding on that part.  (for example I am going to assumed the appraiser in a case that was studied qualified because they were involved in the actual acquisition part and they were directly interacting with the property and providing a service for both the seller and buyer.

Any insight or examples that someone could share would be helpful, thank you!

Michael Plaks · Answer

@Pierre E. - I'm hesitant to answer a question coming from Washington D.C., you never know what it will lead to... :)

Kudos for doing the research! Some of the examples you cited require checking case history, and I don't have time for that at the moment, so my answers are tentative, and my colleagues might correct me if I err on one or two of them. Here we go.

wholesaling - yes

staging/photography - debatable, but probably yes

inspector - debatable, but probably yes

plumber - yes

operating what you called a turnover company - yes, assuming you're not talking about a bakery :)

And I assume we're talking about self-employed people, not W2 employees.

Sergey A. Petrov · Answer

@Pierre E. and @JD Martin, thanks to both of you. Might be worth exploring. I do think i have a bunch of passive carry overs every year..

Pierre E. · Answer

Just wanted to circle back and say thank you to everyone who shared some thoughts and helped me brainstorm and learn! If anyone has actually claimed REPS tax status I would love to chat! I left some article links under my previous comment for anyone also looking for more information - also some video clips below.

@Sergey A. Petrov  like @JD Martin said you can deduct more losses from real estate. Can be helpful if you want to deduct from earned income especially if you are in a high tax bracket, or at least are over the limit with income. Even if done for a few years, it can help you more efficiently use the money you have now, potentially acquire more property because of that and help accelerate growth. it was mentioned a few places in the BP youtube podcasts:BP Youtube Video Clip - Paul Moore -  How Real Estate Investors Avoid Paying Taxes (Forever!)  -     Apr 30, 2022  at 13:00 mark until the endBiggerPockets Podcast Episode 625 -How To Avoid Taxes by “Buying” Rental Property Write-Offs  -  Jun 21, 2022  at the 7:50mark to the 19:05 markBiggerPockets Podcast Episode 569 - How To Avoid Taxes (Legally) as a Real Estate Investor     93,239 views Feb 10, 2022  -   23:15 Mark  to the 37:20 markBiggerPockets Podcast Episode 424 - Make More Money and Get Greater Tax Deductions in 2021  -  Dec 10, 2020   at 13:15 mark to the 17:15 markAll the best to everyone!

Jonathan R McLaughlin · Answer

@JD Martin actually 2 parts to this I believe: first qualifying as a real estate professional and THEN having 500 hours of direct involvement in managing particular rental properties.

JD Martin · Answer

You can claim anything until you have to defend it. So always keep that in mind.

As far as your examples, I would say:

Plumber: probably not especially if you're an employee

Wholesaler: yes with caveats depending on licensing requirements

Appraiser or inspector: no, if one did then there was some other aspect in play

Last one: probably

JD Martin · Answer

Deduct all losses instead of being capped like passive. It can significantly reduce your tax liability.

Sergey A. Petrov · Answer

Pardon my ignorance but what is the benefit of qualifying for that?

Pierre E. · Answer

@JD Martin  & @Michael Plaks Thank you both for the candid responses and the humor!  (I swear were not all crazy over here in DC! weve got Joe Asamoah and Russell Brazil to back me up ... I hope!)     and yes self employed 1099 non food makin/bakin ppl :-) I have looked at several articles, (always more detailed than the videos I have watched so far) ....the main ones are below - An appraiser won a challenge to his REPS status because he was involved in the buying and selling transaction. Since that is for valuation's sake....almost as if that appraiser "makes a mark on" the property, not sure if the same could be applied to the inspection of the property or not?A lawyer won REPS status challenge because he owned a prop management company more than 5% had material participation through providing legal services, but because he did some sort of work in a business that DID qualify (within one of the 11 categories) and he had sufficient ownership of it, it met the status. Mortgage Lender didnt qualify, not directly involved in the buying and selling. CPA doesn't qualify. From this and other questions just have been trying to understand more. I have no desire to tango with the IRS and like to keep my nose clean, but am exploring data and options as I consider what routes to pursue going forward in real estate as well as what resonates best with me. Again I really appreciate your thoughts and will keep learning and would love to hear others perspectives as well, if anyone has done something specific, and if it has passed muster.

also @ Michael I don't mind digging through case history of you might have some guidance as to how to start me off? Key REPS Data I have found so far (I havent checked Kitcies yet! but maybe theres some there too):irs.gov/publications/p925therealestatecpa.com/guide-to-qualifying-as-a-real-estate-professionalthetaxadviser.com/issues/2017/mar/navigating-real-estate-professional-rules.htmlthetaxadviser.com/issues/2014/jul/skarbnik-july2014.html

Pierre E. · Answer

Another aspect:A plumber works installing plumbing on houses - would that meet for construction/reconstruction or conversion?

A wholesaler assists bringing together buyers and sellers and involved in the acquisition of real estate

An appraiser appraises, or an inspector inspects, real estate during the sale transaction process thus correlates to the  acquisition category

If I own 100% of a rental property turnover company where we redo cosmetic work to homes to get them rent-ready - repair /replace flooring, repair holes in walls small or big, replace drywall and repair leak damage and I spend >750 hours managing and coordinating the operations of that company...which of these would qualify?

.

Who Qualifies for IRS-REPS - Real Estate Professional Status?

Most Popular Reply