What Property Owners Should Know About Real Estate Professional Status
If you’re a landlord in the Inland Empire looking to maximize your investment, understanding Real Estate Professional Status (REPS) can help you unlock tax breaks while keeping your cash flow healthy. Whether you manage your properties yourself or are considering hiring a property management company like Realicore, knowing how REPS works can save you thousands in taxes and align with your long-term strategy.
What Is Real Estate Professional Status?
The IRS classifies Real Estate Professional Status as a designation that allows landlords to treat rental activities as non-passive income, enabling you to use rental property losses to offset other income. This can result in significant tax breaks for property owners who qualify.
To qualify for REPS:
You must spend more than 750 hours per year in real estate activities, such as managing your properties, acquiring new rental investments, or overseeing repairs.
More than 50 percent of your working time must be in real estate activities.
For many investors, achieving this status is challenging, especially if you have a full-time job outside of real estate. However, property owners with multiple rental units who actively manage tenant relationships and property maintenance may already be close to meeting these requirements without realizing it.
Learn more directly from the IRS guidelines on Real Estate Professional Status
The Tax Benefits of REPS for Landlords
The primary benefit of REPS is the ability to deduct rental property losses against your other income. Without REPS, many landlords are subject to passive activity loss limitations, which generally restrict your ability to use rental losses unless you have passive income to offset them.
With REPS, you can:
Reduce your taxable income, potentially moving into a lower tax bracket.
Accelerate depreciation deductions on your rental properties.
Use cost segregation studies to further enhance your deductions on multifamily or commercial properties.
For example, if you own a fourplex in Redlands and actively manage tenants and maintenance, achieving REPS could allow you to deduct repairs, property management expenses, and mortgage interest against your other income, maximizing your investment returns while minimizing taxes.
For a deeper breakdown on potential tax benefits, consider reviewing this Tax Foundation article on real estate taxes.
Can You Still Use a Property Management Company and Qualify for REPS?
One common question we receive from property owners is whether they can hire a property management company and still qualify for REPS. The answer depends on your level of involvement.
While using a property management company can reduce your day-to-day responsibilities, it may limit your ability to count those hours toward your 750-hour requirement unless you are actively involved in decision-making, tenant communication, and property oversight.
At Realicore, we encourage property owners to take a balanced approach. If your primary goal is to reduce your taxes while maintaining investment performance, you can work closely with your property management team to remain involved in critical decisions, vendor management, and investment analysis, helping you stay engaged enough to potentially meet the REPS criteria while benefiting from professional property management.
Is REPS Right for Your Investment Strategy?
Real Estate Professional Status is not the right fit for every landlord. It requires careful tracking of hours, proactive involvement in your rental business, and consultation with a qualified tax professional to ensure compliance with IRS guidelines.
However, if you own multiple properties across the Inland Empire or are expanding your portfolio, understanding and leveraging REPS could significantly reduce your tax burden while keeping your investments aligned with your long-term goals.
To explore how Realicore can help you streamline property management while maximizing your investment potential, contact us today. Our team understands the unique challenges Inland Empire landlords face and is here to help you achieve your goals confidently.
