Qualifying for real estate professional (REP) status - tax questions for rental property purchase

The Real Estate Professional status has very specific requirements that are often misunderstood. Based on what you've shared, I'm concerned your wife may not qualify. To be considered a REP for tax purposes, your wife must: 1) Perform more than 750 hours of service during the tax year in real estate trades or businesses 2) More than half of all personal services she performs in trades/businesses must be in real estate activities 3) She must materially participate in each rental activity Hosting three open houses and helping two buyers probably doesn't come close to 750 hours. This is a substantial time commitment - roughly 15 hours per week all year. As for your other questions - the 750 hours applies to ALL real estate activities combined, not just for a specific property. However, to use losses from a rental against other income, you must materially participate in that specific rental property. Buying a property later this year won't retroactively allow you to count hours from earlier in the year for that specific property.

I've been using taxr.ai for my real estate tax questions and it's been super helpful for situations like yours. I was confused about REP status last year too because my brother-in-law is a realtor and we own multiple properties. I uploaded my documents to https://taxr.ai and chatted with their tax AI about REP qualification. It explained that even though my brother-in-law met the 750+ hours in real estate trades, the grouping of properties for material participation was critical. The system highlighted that you need to make a formal election to group properties and showed me exactly where on the tax forms to do it. The analysis even pointed out depreciation strategies I hadn't considered that saved us about $8,000 in taxes. Might be worth checking out for your situation, especially with the bonus depreciation questions you have.

Just wanted to follow up about my experience with taxr.ai since I was skeptical but decided to try it. I'm really impressed! I uploaded my rental property docs and asked specifically about REP status qualification. The system analyzed my situation and pointed out I was making a critical mistake - I was counting hours my spouse spent managing properties but not documenting them properly, which wouldn't stand up in an audit. It suggested a documentation system that's actually pretty easy to maintain. What surprised me most was how it explained the material participation tests in plain English and showed me that I could qualify under Test 3 (I participate 100+ hours and no one else does more), even though I was fixated on the 500-hour test before. Saved me tons of documentation headaches and I feel way more confident about claiming REP status now.

If you're planning to claim REP status, be prepared for potential IRS questioning. I've been trying to get answers from the IRS about a similar situation for WEEKS and it's impossible to reach anyone! After 15+ calls and hours on hold, I finally found https://claimyr.com which was a game-changer. They have a service where they wait on hold with the IRS for you, and when an agent is available, they call you to connect with the agent immediately. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I got through to an IRS representative in a day instead of weeks of trying myself. The agent confirmed that for REP status, they look at EACH tax year independently, so even if you buy a property in December, you'd need to demonstrate that your wife met the 750-hour requirement for the ENTIRE year, not just since purchasing the property. The agent also emphasized that documenting hours is critical - they look for contemporaneous records during audits.

I take back what I said about Claimyr sounding like a scam. After fighting with the IRS hold system for weeks, I was desperate enough to try it. Got through to an agent in 2 days after waiting on my own for nearly a month. The IRS agent I spoke with actually cleared up my REP status confusion completely. They explained that material participation for each rental property is separate from the overall 750-hour requirement for REP status. I'd been doing my taxes wrong for 2 years! The agent also helped me understand how to properly document my hours if I get audited - apparently just saying "I worked X hours" isn't enough. I hate paying for something that should be free (talking to the IRS), but the hours of frustration it saved me was completely worth it. My tax anxiety is finally gone.

Something people miss with REP status is that your wife must be a 5% owner in the real estate business for her agent hours to count. Is she an employee or independent contractor/broker? This can make a huge difference. Also, the 750 hours must be in "real property trades or businesses" which includes being an agent, but the real kicker is the material participation test for the specific rental property. The easiest test to meet is the 500-hour one, and I doubt you'll hit that in just a few months if you buy in the last quarter. Consider making a grouping election to treat all rental activities as a single activity. That way all your rental property hours can be combined to meet the material participation test.

I'm curious - has anyone successfully claimed bonus depreciation on a property purchased late in the tax year while qualifying for REP status? We bought our rental on Dec 18 last year and our accountant says we can't claim much since we only owned it for 2 weeks of the tax year.

For your specific situation, since your wife is a full-time licensed real estate agent working 40+ hours weekly, she should easily qualify for REP status. The key things to focus on now: 1) **Documentation is critical** - Start keeping detailed time logs immediately if you haven't already. Track every hour spent on real estate activities with dates, times, and descriptions. The IRS loves to audit REP claims and contemporaneous records are your best defense. 2) **Material participation for your rental** - Since you're buying late in the year, you'll need to be strategic about meeting the material participation tests for that specific property. The 100-hour test (where you work 100+ hours and more than anyone else) might be more realistic than trying to hit 500 hours in just a few months. 3) **Consider the grouping election** - If you plan to buy multiple rental properties in the future, making an election to group all rental activities as one can make material participation much easier to achieve across your portfolio. 4) **Bonus depreciation timing** - Good news here! As long as your property is "placed in service" before December 31st (ready and available for rent), you can claim the full bonus depreciation amount regardless of when in December you bought it. Make sure to work with a tax professional familiar with REP status - the rules are complex and the audit risk is higher than typical rental property claims.