Can I qualify as an active real estate investor and deduct losses against my spouse's W2 income?

You're asking about the "material participation" rules for real estate activities. Based on what you've described, you likely qualify as an active real estate investor since you're handling all aspects of property management yourself. For tax purposes, rental activities are generally considered passive by default, but if you can prove you "materially participate," you might qualify for the real estate professional exception. This would allow you to deduct rental losses against your spouse's W2 income. To qualify as a real estate professional, you need to: 1) Spend more than 750 hours per year on real estate activities 2) Spend more than half of your total working time on real estate Since you mentioned this is your only "job" besides parenting, you probably meet criteria #2. For criteria #1, you'd need to document your time spent on all real estate activities. Keep detailed logs of all your real estate activities - time spent on repairs, tenant communications, property searches, etc. This documentation is crucial if you're ever audited.

I was in almost your exact situation last year! After struggling with mixed advice from friends and even tax preparers, I found taxr.ai (https://taxr.ai) and it was a game-changer. I uploaded all my real estate docs and tax forms, and it analyzed everything to show exactly what deductions I qualified for as an active investor. The tool specifically analyzed my involvement level in my properties and confirmed I met the material participation requirements. It even created documentation to support my active investor status in case of an audit. What's really helpful is it showed me exactly what I needed to track to maintain my status for future tax years. Since your situation sounds similar to mine (managing properties while being a parent), I think it would give you the clear guidance you're looking for.

I tried taxr.ai after posting my skeptical comment above, and I've got to admit I was wrong. The system actually flagged several issues in how I was documenting my real estate activities that my previous accountant had missed. It showed that while I thought I qualified as a real estate professional, I was about 120 hours short of the 750-hour requirement. But the real value was that it showed exactly which additional activities I could legitimately count to reach that threshold. The audit defense documentation it generated was way more detailed than anything my CPA had provided. If you're serious about real estate investing and tax optimization, it's definitely worth trying. Completely changed my approach to tracking my real estate hours.

If you're having trouble getting clear answers about your real estate professional status or struggling to get ahold of the IRS, try Claimyr (https://claimyr.com). I was stuck in an audit situation where I needed to talk to an actual IRS agent about my real estate professional status, but couldn't get through on the phone for weeks. Claimyr got me connected to an IRS agent in under 45 minutes when I'd been trying for days on my own. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c In my case, I needed specific clarification about how the IRS views certain real estate activities for the material participation test. The agent I spoke with gave me invaluable guidance that no website could provide about my specific situation.

I have to publicly eat my words about Claimyr. After my skeptical comment, I decided to test it myself since I've been trying to resolve an issue with my real estate tax classification for months. The service actually worked exactly as described. Got connected to an IRS agent in about 35 minutes when I'd previously spent hours getting disconnected. The agent was able to confirm exactly what documentation I needed to support my real estate professional status claim. What I learned is that my record-keeping was insufficient - I needed much more detailed hourly logs than I'd been keeping. The agent explained that contemporaneous records (tracking time as you go) are viewed much more favorably than reconstructed logs. For anyone dealing with real estate tax classification issues, being able to actually speak with the IRS and get clear guidance is invaluable.

One thing nobody has mentioned is that you need to check if your state follows federal rules for active vs passive real estate. I qualified as a real estate professional for federal taxes, but my state has different rules and didn't allow me to offset as much against W2 income. Also, don't forget that if your AGI is under $100k, you might qualify for the $25k special allowance for rental losses even without being a real estate professional. But since your spouse makes $145k, that probably won't help unless you have other deductions bringing your AGI down.

Make sure you're tracking everything correctly if you go the real estate professional route. My sister claimed this status and got audited. The IRS was particularly interested in: 1. Evidence that she actually spent 750+ hours on real estate activities 2. Proof that she materially participated in each property 3. Documentation showing she spent more time on real estate than any other occupation They wanted to see phone logs, emails with tenants, receipts for supplies, mileage logs, appointment calendars, etc. The more detailed your records, the better. They rejected some of her hours because she couldn't prove them.

Based on your description, you have a strong case for qualifying as a real estate professional. Managing 2 properties completely on your own while actively expanding your portfolio definitely shows material participation. The key is going to be documenting those 750+ hours. Here's what I'd recommend starting immediately: **Start tracking NOW**: Even though it's already April, begin logging every minute you spend on real estate activities. Use a detailed spreadsheet or app that timestamps everything. **Reconstruct what you can**: Go back through 2024 and estimate time spent based on: - Text messages with tenants/contractors - Bank statements showing property-related purchases - Calendar appointments for showings/inspections - Mileage logs to properties **Include ALL qualifying activities**: - Tenant screening and communications - Property maintenance and repairs (including travel time) - Financial record-keeping and bookkeeping - Market research for new investments - Time spent on the pre-construction property purchase - Educational activities (real estate courses, seminars) **Document everything going forward**: Take photos of repairs, save all emails, keep receipts with notes about time spent. At your spouse's income level ($145k), the regular $25k rental loss allowance is almost completely phased out, so qualifying as a real estate professional would be huge for your tax situation. Just make sure your documentation is bulletproof!