For real estate investors, few tax designations are as powerful—or as misunderstood—as Real Estate Professional Status (REPS) under Section 469 of the Internal Revenue Code. This isn’t just another label. It can determine whether you get to fully deduct your real estate losses against active income or lose those deductions to passive loss limitations.
In this episode of The Legacy Academy, attorney and tax strategist Natalia Ouellette-Grice, JD, MBA breaks down exactly what REPS means, how it works, and who truly qualifies. She explains the two-part test that separates serious real estate professionals from passive investors, and why hours logged in qualifying real property activities matter more than most people realize.
Natalia explores the common hurdles investors face—especially those with full-time jobs outside real estate—and what the IRS looks for when challenging REPS claims. She also clears up the confusion around married filers: while spouses can share hours for material participation, the taxpayer claiming REPS must still meet the quantitative tests personally.
Listeners will also gain clarity on which types of activities—like development, management, or brokerage—count toward qualification, and which don’t. Natalia highlights the real-world tax advantages of earning REPS, such as deducting rental losses in the current year and reducing exposure to the Net Investment Income Tax (NIIT).
But she also cautions that REPS isn’t without risk. The documentation burden is heavy, audits are common, and failing to maintain accurate records can turn this tax-saving opportunity into an expensive lesson.
If you’re serious about scaling your real estate portfolio or optimizing your tax position, this episode will help you understand when Real Estate Professional Status is worth pursuing—and how to do it right.
