If you’re a short-term rental investor looking to wipe out a chunk of your tax bill, three little letters could change your life: REPS.
Short for Real Estate Professional Status, REPS is a designation from the IRS that allows you to use real estate losses to offset active income — like a W-2 salary or business earnings. For many STR investors, it’s the difference between paying the IRS five figures… or paying nothing.
But here’s the kicker: qualifying for REPS isn’t easy. It requires strategy, time tracking, and commitment. That said, for the right investor, the payoff can be huge.
In this guide, we’ll walk through:
REPS is a tax status that lets real estate activities count as active business income — not passive income.
This matters because:
Example:
You’re a physician earning $300,000/year. You also own a few STRs.
If your spouse qualifies for REPS and you cost seg a new STR, you could wipe out $100K+ in taxable income from your W-2 earnings.
To qualify for Real Estate Professional Status, the IRS says you must:
You must also:
Key rule: These hours must be personal, direct involvement — not hiring a PM or replying to texts. Think: bookings, guest messaging, repairs, staging, design, etc.
✅ These typically count:
❌ These don’t count:
Even if you meet the 750-hour requirement, you must materially participate in each rental activity — especially if they’re held in separate LLCs or locations.
The IRS defines material participation through seven tests. STR investors typically qualify under these two:
You must meet one of the tests for each property, unless you elect to group them.
Here’s where things get juicy for STR investors.
Normally, REPS is tough for long-term landlords — they just don’t rack up enough hours.
But STRs? They’re hospitality businesses, not just rentals.
If your average guest stay is under 7 days, the IRS often treats the income as active — meaning you don’t need REPS to offset income if you materially participate.
This is sometimes called the STR loophole — and we’ll cover that in this guide next.
However, if you don’t materially participate — or if your stays are longer than 7 days — then REPS is critical.
| Feature | REPS | STR Loophole |
| Requires 750 hours/year | ✅ Yes | ❌ No |
| Offset W-2 income | ✅ Yes | ✅ Yes (if active income) |
| Need short stays (<7 days) | ❌ No | ✅ Yes |
| Good for long-term rentals | ✅ Yes | ❌ No |
| Easier with STRs | ⚠️ Still requires logging | ✅ Easier if you self-manage |
One often-missed detail with REPS: depreciation recapture.
When you sell the property, the IRS may “recapture” your previously deducted depreciation. You’ll pay a 25% tax on that amount (unless you 1031 exchange).
That said — many investors:
To file as a real estate professional:
Talk to a tax advisor — this isn’t something to wing.
REPS is a powerful strategy that, when executed well, can slash your tax bill and supercharge your investment returns.
It’s not for everyone — but for those who can commit the hours and stay organized, it’s one of the best tools in the STR playbook.
If you’re:
…REPS could save you tens of thousands in taxes.
At Deal Room, we help STR investors:
👉 Grab the REPS Qualification Checklist
👉 Book a free tax strategy call
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