How Many Hours Do I Need to Qualify for Real Estate Professional Status?

Real Estate Professional Status (REPS) is enticing to real estate investors for a few reasons, not least of which is the tax benefits.

So you want these tax benefits, but are you a good fit?

If you actively manage your rental real estate portfolio and work in real property trades or businesses you own as your primary occupation, you might be.

To understand the qualifications required for REPS, see our REPS guide.

What Activities Count Towards Hours for Real Estate Professional Status?

Material participation hours include time spent on the following activities:

• Working on repairs or construction at the property
• Hiring and managing a general contractor or handyman for the property
• Communicating with tenants
• Acquisition of a property, e.g. time spent searching for a property you do purchase
• Most activities that a property management company would handle

Activities that do not count as material participation are things like:

• Real estate education
• Investor hours
• Unsuccessful acquisition, e.g. time spent searching for a property you do not purchase
• On-call hours where no work is actually performed

The IRS does not specifically outline these requirements. Your best plan of action is to have your records backed by proof.

Proof for Real Estate Professional Status Hours

Just putting in material participation hours is not enough: you also have to provide proof.

Being taxed as a real estate professional increases your chances of an audit, and the burden of proof is on you, not the IRS.

In this case, having strong documentation of the time you spent managing your properties significantly improves the likelihood of a positive outcome.

Real estate professionals should maintain time logs on a contemporaneous basis.

What qualifies as proof? Many things, such as emails, calendar appointments, meeting minutes, receipts, and more. Keep records of anything you believe could be relevant.

Tracking Your Hours

It’s important to understand the magnitude of 750 hours, especially if you are working part-time. 750 hours is equivalent to 30+ days.

Before attempting REPS, it may be beneficial to create a calendar, breaking down your hour goal on a monthly or weekly basis.

It’s crucial to remember that these hours must be in a real property trade or business.

It’s also crucial to understand that it’s nearly impossible to work a full-time job and qualify for REPS.

Not only because of the 750-hour requirement, but also because you need to spend more time on real estate than your other job.

This is when having your spouse manage the properties and meeting the requirements becomes a valuable strategy.

Examples & Time-Tracking Tips

The golden rule of REPS is you must record your time accurately.

One way to do this is by crafting a REPS time log spreadsheet with the date, the work performed, the number of hours, and detailed notes.

Under work performed, you will note which of the 11 real property trades or businesses the duty fell under (real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade.)

Keep the spreadsheet in a folder where you can also upload receipts, call logs, emails, and any other proof of time.

Applications for REPS Time-Tracking

If spreadsheets make you cringe, several apps and tools can help you maintain accurate time logs.

Here are a few options:

1. TSheets by QuickBooks

Features:

• Simple time tracking via mobile app, web, or desktop.
• Syncs with QuickBooks for tax reporting.
• Customizable reports that show hours worked in specific areas.

Best for: Those already using QuickBooks for accounting and looking for seamless integration.

2. Toggl Track

Features:

• Easy to use with a one-click timer for tracking activities.
• Offers detailed reports on time spent on specific tasks.
• Syncs across devices.

Best for: Real estate professionals who want a straightforward time tracker with reporting features.

3. Clockify

Features:

• Free version available with unlimited tracking.
• Allows for categorization of activities (e.g., property visits, tenant communications).
• Detailed reports for review and documentation.

Best for: Those looking for a free solution with detailed reporting and categorization.

4. RescueTime

Features:

• Automatically tracks time spent on websites and applications, giving you insight into your daily activities.
• Helps identify distractions and improve focus.

Best for: Busy real estate investors who need to ensure they’re spending enough time on real estate-related activities.

5. Harvest

Features:

• Offers detailed timesheets and expense tracking.
• Allows project-based tracking, useful for segmenting time across different properties.

Best for: Those looking to combine time tracking with project management.

6. HoursTracker

Features:

• GPS-based clock-in and clock-out feature to log hours automatically when you enter and leave properties.
• Customizable pay periods and hourly rates.

Best for: Investors who want a mobile-focused app that logs time with minimal manual input.

7. TimeCamp

Features:

• Automatic time tracking with task-specific categorization.
• Offers detailed reports that can be exported for tax purposes.

Best for: Those looking for a more advanced, automated tool with in-depth reporting.

8. Everlance

Features:

• Primarily focused on mileage tracking, but it can also be used for time tracking.
• Auto-detect feature for when you’re driving for real estate purposes.

Best for: Real estate professionals who travel frequently and want to combine time and mileage tracking.

Partner with a specialized tax advisor for REPS

Don’t let this information overwhelm you or dissuade you from seeking your Real Estate Professional Status.

If you believe you’re a good fit for the REPS designation and want to ensure you are on the right track, speak to a specialized real estate tax advisor.

Even if you don’t meet the criteria for REPS right now, a good tax professional can help you map a plan to get there, plus there are many other real estate tax strategies you could take advantage of.

Whatever the case, it is important to seek guidance from experienced real estate tax professionals.

At Hall CPA, we specialize in real estate tax strategy and have extensive experience in guiding investors through the complex process of qualifying as a real estate professional.