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Real Estate Professionals

Day & Associates: Business & Tax Advisors May 20, 2025

Those individuals considered “Real Estate Professionals” under the tax code have the advantage of having rental losses no longer considered “passive” and can be used to offset wages, business income or investment income.  To qualify as a “Real Estate Professional,”, the person must meet the following IRS requirements under IRC §469(c)(7):

1. More Than 50% of Personal Services in Real Property Trades or Businesses

You must spend more than 50% of your total working hours during the tax year in real property trades or businesses in which you materially participate.

  • This includes development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage.

If you have another full-time job outside of real estate, it’s very difficult to meet this test unless you’re working part-time in that job and full-time in real estate.

2. 750 Hours Rule

You must spend at least 750 hours of services during the year in real property trades or businesses in which you materially participate.

  • The 750 hours must be in activities related to real property.

  • You must materially participate in each rental activity or make an election to treat all rental real estate activities as a single activity (more on this below).

Important Additional Requirements & Tips

  • Election to Aggregate Rentals: If you own multiple rental properties, you should file an election to treat all rental real estate activities as one activity. This is done by attaching a statement to your tax return under Reg. §1.469-9(g).

  • Keep Detailed Logs: Maintain contemporaneous records (like time logs, calendars, or spreadsheets) showing the hours you work and the type of activities performed.

  • Material Participation Standards: You also must meet one of the seven IRS material participation tests, such as participating more than 500 hours in the activity during the year.

  • Spouse Participation: If you're married, your spouse’s hours do not count toward meeting the 750-hour or 50% test, but they can count for material participation once you qualify as a real estate professional.

  • W-2 Job Pitfall: If you have a full-time W-2 job that’s not in real estate, the IRS is likely to scrutinize your real estate professional status. Be ready to prove your time allocation.