Real estate professional status
Explore with diligence: legitimate, needs careful checks.
Rental losses are usually passive, which means they can only offset other passive income. Real estate professional status changes that: if you qualify, your rental losses can offset wages, business income and investment income.
The bar is high. You need more than 750 hours a year in real estate businesses, and more than half of all your working time, plus material participation in the rentals themselves.
How it works
Rental losses are usually “passive” and can’t offset other income. A real estate professional (more than 750 hours a year, and more than half of working time, in real estate) can use them against other income. Short-term rentals with an average stay of 7 days or less follow a different test.
What makes it hold up
- A log of hours, kept as you go
- What each block of time was spent on
- Proof of material participation in each rental
Risks
High scrutiny. The IRS often audits this, and hours logs written afterward are routinely rejected.
Questions to ask your CPA
- Does a spouse’s time qualify?
- Does the short-term rental rule apply to a rental you own instead?
- What log format holds up?
Common questions
Can my spouse qualify for both of us?
On a joint return, one spouse has to meet the 750-hour and more-than-half tests alone. Once that spouse qualifies, both spouses' hours can count toward participating in the rentals.
Can I qualify with a full-time job?
It's very hard, because real estate has to be more than half of all your working hours. A full-time job usually makes that impossible.
Do I have to participate in each rental separately?
By default, yes. Many owners make an election to treat all their rentals as one activity so the hours add up. Ask your CPA before making it.
What records hold up?
A log kept as you go, showing dates, hours and what you did. Logs reconstructed later are routinely rejected.
Cratchit runs every strategy in this library against your real numbers, rates it, and keeps the records that make it hold up. Take a guided tour with the Harpers, a sample family.
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Education, not advice. Tax law changes and every situation is different, so confirm the details with your CPA or tax advisor before acting. This page was last checked against tax law as of October 2026, including the 2025 tax law, in October 2026.