I am not a W-2 earner right now but have a small business, working from home.
How can I prove that I can qualify as a REP even as a newbie in the business of RE? It seems like it’s hard to prove being materially participating in the rental property business that we are planning on buying, especially if I hire a property manager.
Bernadette
Just a random person so still wait for their official reply. In my opinion and understanding (which may be wrong). Real Estate Professional (REP) is beneficial to a certain kind of situation which may not apply to you. In that case, it won’t matter. REP helps in the following circumstances: You or your spouse has 1) earned income (W2, 1099) and can offset 2) losses from real estate. If you have zero earned income and make a profit from your rentals, REP won’t help.
To “prove” you qualify, you must keep records that the IRS may audit. There is a form or checkbox that you complete the first year you qualify and claim REP status. There is a number of hours per year you must put into the business (I think 750 hrs), must materially participate, and be clear this is your main job. A quick google search will get you the full list of requirements.
You want to keep a log of your hours for at least the first 250 hours anyways for the Qualified Business Income (QBI) deduction which is a great deduction.
Good luck.