If you are a fund manager or capital raiser, you probably don't qualify for REPS

[Dylan Brown]

This is something that I think a lot of people get wrong.

Let's say you spend 100% of your working hours putting together funds for the sole purpose of using investor capital to invest in real estate.

You partner with sponsors that are running deals, and you are a co-sponsor (co-GP).

Your main responsibility is to underwrite, raise capital, and monitor performance. You are probably pretty savvy with real estate and may even have some prior experience being the lead sponsor on some deals in the past.

As a co-sponsor, you also have a stake in the property yourself, and you receive a K-1 with significant losses for the first year.

Unfortunately, you are just a passive investor like the rest of the investors in your fund, so those losses will not be offset against your other forms of earned income.

The crux of the issue here is that in order to make REPS status, you have to be involved in a real property trade or business which deal financing and underwriting does not qualify for.  The kicker is that if this is you, your hours actually count against REPS, not simply just tossed out.