← Back to Tax Planning

Qualified Real Estate Professional (QREP) Status

A tax designation allowing qualifying individuals to deduct real estate losses, including depreciation, against ordinary income rather than treating them as passive losses limited by the passive activity rules.

Regulation Source: Billionaire Wealth Strategies Verified: 2026-04-07

What Is Qualified Real Estate Professional Status?

Qualified Real Estate Professional (QREP) status is an IRS designation under IRC Section 469(c)(7) that allows individuals to treat real estate rental activities as non-passive for federal tax purposes. Without QREP status, rental real estate losses are classified as passive under IRC Section 469 and can only offset passive income (with a limited $25,000 exception for taxpayers with AGI below $150,000). With QREP status, real estate losses, including large depreciation deductions from cost segregation studies, can offset ordinary income from any source.

As discussed in "Billionaire Wealth Strategies" (Jim Dew, 2024), Chapter 9, QREP status falls under the "R" (Reduce) component of the DEAPR framework.

How Does QREP Status Work?

To qualify under IRC Section 469(c)(7), the taxpayer must meet two tests in the same tax year:

750-hour test: The taxpayer must spend at least 750 hours performing services in real property trades or businesses during the tax year. Qualifying activities under Treasury Regulation 1.469-9 include development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, and brokerage of real property.

More-than-half test: More than 50% of the taxpayer's total personal services performed during the tax year must be in real property trades or businesses. A taxpayer who works 2,000 hours total must spend at least 1,001 hours in qualifying real estate activities.

Additionally, the taxpayer must "materially participate" in each rental activity under IRC Section 469(h). Material participation requires meeting one of seven tests, the most common being 500 or more hours of participation in the activity during the year. Alternatively, the taxpayer may elect under Treasury Regulation 1.469-9(g) to aggregate all rental real estate interests and materially participate in the aggregate.

Once qualified, real estate rental losses flow through as non-passive on the taxpayer's return. These losses offset W-2 income, business income, investment income, or any other ordinary income subject to the top federal rate of 37% (2025). The IRS scrutinizes QREP claims closely; contemporaneous time logs documenting hours spent in qualifying activities are essential to surviving an audit.

When Do Entrepreneurs Use QREP Status?

Spouse qualification strategy is the most common approach for entrepreneurial couples. Under IRC Section 469(c)(7), only one spouse on a joint return needs to qualify. An entrepreneur's spouse who manages rental properties can meet the 750-hour and more-than-half tests while the entrepreneur focuses on the operating business. The qualifying spouse's status allows the couple to deduct real estate losses against the entrepreneur's business income on the joint return.

Real estate investors with significant portfolios who spend substantial time managing properties may qualify on their own. Property managers, developers, and real estate brokers often meet the hour requirements through their professional activities.

Combined with cost segregation, QREP status unlocks the ability to use accelerated depreciation deductions under IRC Section 168 against non-real-estate income. A cost segregation study on a $3 million commercial property might generate $600,000 to $900,000 in first-year deductions through component reclassification and bonus depreciation. Without QREP status, those losses are passive. With QREP status, those losses offset ordinary income taxed at up to 37%.

How Does Dew Wealth Approach QREP Planning?

QREP status combined with cost segregation creates one of the more significant deduction generators in the DEAPR Reduce toolkit. The combination converts real estate depreciation (a non-cash expense) into a dollar-for-dollar offset against highly taxed ordinary income.

The Fractional Family Office^® coordinates QREP qualification documentation, the cost segregation engineering study, and the integration of resulting deductions into the overall tax strategy. Contemporaneous time logs, calendars, and activity records are prepared and maintained throughout the year rather than reconstructed at tax time.

QREP status carries significant audit risk. The IRS frequently challenges the 750-hour and more-than-half tests, particularly for taxpayers whose primary occupation is not real estate. The Tax Court has disallowed QREP status in multiple cases where taxpayers failed to maintain adequate records (see Patel v. Commissioner, T.C. Memo 2022-122). The more-than-half test is especially difficult for entrepreneurs with active operating businesses, as their non-real-estate hours often exceed their real estate hours. The spouse qualification strategy addresses this challenge but requires the qualifying spouse to genuinely perform and document the required hours.

Frequently Asked Questions

I run a business full-time. How can I qualify for QREP status?

The spouse qualification strategy under IRC Section 469(c)(7) is most common for entrepreneurs. If your spouse manages rental properties and meets both the 750-hour test and the more-than-half test, the couple qualifies on a joint return. The qualifying spouse must maintain contemporaneous time logs documenting the activities performed and hours spent.

What counts as a real estate activity for the 750-hour test?

Under Treasury Regulation 1.469-9, qualifying activities include development, construction, acquisition, conversion, rental, operation, management, leasing, and brokerage of real property. Activities must be in a "real property trade or business" where the taxpayer owns an interest. Personal residence maintenance does not count.

What records do I need to keep?

Contemporaneous time logs are the standard the IRS and Tax Court require. The logs should document the date, activity performed, property involved, and hours spent. Calendar entries, property management software records, and contractor coordination emails serve as supporting evidence. Reconstructed logs created at year-end or during an audit carry significantly less weight.

Disclosure

Certain portions of this publication may contain a discussion of potential benefits and results as of a specific prior date. Due to various factors, including changing market conditions and regulations, such discussion may no longer be reflective of current potential benefits and/or results. Please remember that past performance may not be indicative of future results. Different types of investments and strategies involve varying degrees of risk, and there can be no assurance that any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Dew Wealth or any of its advisory representatives), or any non-investment-related services, will be suitable for your portfolio or individual situation, or prove successful.

The potential savings and benefits discussed represent typical results based on the experience of existing clients. Individual results can and will vary based upon a variety of factors, such as the client's investment and financial circumstances, tax bracket, current insurance policy terms and insurance needs, and overall objectives. Neither the scope nor nature of the firm's services should be construed as guarantees of a particular outcome. Dew Wealth Management, LLC ("Dew Wealth"), an SEC-registered investment adviser located in Scottsdale, Arizona, provides the Fractional Family Office services described herein. Registration is not an endorsement of the firm by securities regulators, nor is it an indication that the adviser has attained a particular level of skill or ability.

The content herein is intended to serve as informational material only and is intended exclusively for the use of the person named herein. If you are not the intended recipient, please refrain from further dissemination and return or destroy all copies of this material in your possession. This content is not representative of any particular client experience or outcome and is instead intended to provide general information regarding the potential time and money savings that could be experienced, based on various assumptions, inputs, and data sources. Among other things, the results of the calculators are derived from your inputs, and consequently, errors or omissions in entering your data into the calculator could result in materially inaccurate outputs. Dew Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party and included or relied upon herein and takes no responsibility for same. Client experiences and outcomes can and will vary from those reflected herein, and these informational outcomes should not be construed as a direct or indirect guarantee of similar future results.

Not all services will be necessary or appropriate for all clients, and the potential value and benefit of the adviser's services will vary based upon a variety of factors, such as the client's investment and financial circumstances, tax bracket, current insurance policy terms and insurance needs, and overall objectives. Clients are free to accept or reject any recommendations provided by the firm and may choose to implement accepted recommendations with the professional(s) of the client's choosing. The effectiveness and potential success of the adviser's services can depend on a variety of factors, including but not limited to the manner and timing of implementation, coordination with the client and the client's other engaged professionals, and market conditions.

Dew Wealth Management, LLC ("Dew Wealth") is neither a law firm nor an accounting firm and does not provide legal or tax advice. Website visitors and clients should consult an attorney or tax professional regarding their specific legal or tax situation. Dew Wealth is not an insurance agency, but certain Dew Wealth representatives maintain insurance licenses in their individual capacities to allow for consultation on insurance needs and products. Neither Dew Wealth nor any individual insurance agent associated with Dew Wealth receives commission-based compensation for insurance sales. Past performance does not guarantee future results. All investing comes with risk, including the risk of loss.

By accessing, using, or receiving this Document, the Recipient acknowledges and agrees to be bound by the terms and conditions outlined at DewWealth.com/IP.