THE TWO KEY TESTS TO BE REP CERTIFIED
Personal Services Test:
Over half your annual professional services must be deeply rooted in hands-on real property businesses.
Hours Test:
A commitment of 750+ hours a year to these property-centric businesses (that’s an average of 15 hours per week).
But here’s where many trip: It’s not just about showing up. The IRS wants to see you in action , immersed in the daily grind. Casual coffee shop chats about property values? Those won't cut it. And if you’re banking on your day job in property management or real estate to see you through? Think again. Unless you’ve got a 5% ownership stake in that business, those hours won't count. And trust me, I’ve seen many face this heart- wrenching revelation. Also keep in mind the modified – the two tests THE IRS AUDIT NIGHTMARE Claiming to be a REP and falling short on the hours can be more than just a tiny misstep; it can be a colossal blunder. If the IRS decides to peek into your claims and you're found lacking, be ready for headaches, heartaches, and potential financial pain. Those claimed deductions can be disallowed, and the taxman will slap you with penalties and interest on underpayment for doing so.
above must be passed together. So, if you’re working a full-time job (presumably at 2,080 hours a year) and you also work over 750 hours in real estate on the side, you will not pass this test, since over 50% of the hours spent must be in real estate trades.
THE IRS WANTS TO SEE YOU IN ACTION, IMMERSED IN THE DAILY GRIND.
If your case is questionable, I’d recommend documenting your hours in a timesheet day by day to substantiate and prove the ratio of hours spent in real estate versus not. If you’re already a full-time real estate broker, construction professional, or property manager, you most likely have little to worry about, but it’s still worth going through the exercise to make sure.
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