All About REPS: What it Means for Your Short-Term Rentals

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As a short-term rental owner, you are always on the lookout for ways to maximize your profits and reduce your costs. One often-overlooked method to achieve these goals is understanding and applying the tax benefits associated with Real Estate Professional Status (REPS).

Understanding Real Estate Professional Status (REPS)

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Real Estate Professional Status is a tax designation granted by the Internal Revenue Service (IRS). This status allows real estate professionals to fully deduct their rental property losses against their other income, potentially leading to substantial tax savings.

To qualify for REPS, individuals must meet certain criteria outlined by the IRS, including spending more than half of their professional time in real estate trades or businesses and performing at least 750 hours of real estate services during the tax year.

The Benefits of REPS for Short-Term Rental Owners

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Short-term rental owners who achieve REPS can unlock several benefits, including:

  • Writing Off Active Income Against Passive Losses: This benefit can translate into significant tax savings, particularly for high-income individuals.
  • Accelerating Depreciation with Cost Segregation: This strategy involves separating personal property that is part of a real estate property, allowing for a faster depreciation schedule. We have covered the topic of property depreciation and its tax benefits in a previous post.

Final Thoughts

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Understanding and leveraging REPS can have a significant impact on your short-term rental business’ bottom line. If you meet the IRS criteria, it’s worth considering pursuing this status to take full advantage of the associated tax benefits.

As always, we recommend consulting with a tax professional to help navigate the complexities of tax law and make the best decisions for your unique situation.