What’s the real reason most people can’t qualify for real estate professional tax status? In this episode, Brandon Hall breaks down one of the most misunderstood areas of tax law for real estate investors: Real Estate Professional Status (REPS). He explains what it really takes to meet the IRS requirements, why many investors get it wrong, and how short-term rentals provide a unique workaround to unlock non-passive tax losses. Brandon shares actionable insights about what kinds of hours count, how to keep an audit-proof time log, and the tax-saving power of partial asset dispositions. Whether you’re a full-time employee or a hands-on investor, this episode offers practical takeaways on reducing your tax burden through smart structuring and documentation.

 

 

[00:01 - 04:12] Why REPS Isn’t What You Think It Is

• The importance of understanding the IRS’s specific definition of real estate professional status
• Why full-time employees are generally disqualified from REPS—even if they work in real estate
• The significance of your spouse's time if you file jointly and they are more available to qualify

 

[04:13 - 08:34] What Hours Actually Count Toward REPS

• What kinds of work count toward REPS hours—and which ones don’t
• Why education, travel, and investor-related tasks often don’t qualify
• The importance of maintaining a detailed and credible time log

 

[08:35 - 12:48] Short-Term Rentals: The REPS Loophole Without the Status

• How short-term rentals avoid the REPS rules entirely under tax code Section 469
• What the “seven-day rule” is and why it matters
• How material participation alone is enough to make short-term rental losses non-passive

 

[12:49 - 17:00] 3 Tests for Material Participation

• Explanation of the three most common IRS tests for material participation
• Why documentation is key to proving participation, especially with vendors
• Strategies to meet the 500-hour threshold or qualify under the 100-hour rule

 

[17:01 - 22:25] The Most Overlooked Tax Deduction: Partial Asset Dispositions

• How replacing property components like roofs and appliances can create immediate write-offs
• Why this strategy reduces both current taxes and future depreciation recapture
• How to apply this method consistently for long-term tax savings

 

 

Connect with Andy:

 

LinkedIn: https://www.linkedin.com/in/andymcmullen/

 

 

 

Key Quotes:

 

“People treat real estate professional status as a tax loophole—but it’s not. It’s a heavily litigated area and the IRS expects solid documentation.” – Brandon Hall

 

“You don’t have to be a real estate professional to make short-term rental losses non-passive. You just have to materially participate.” – Brandon Hall

 

 

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