HOW TO MAKE YOUR JOB OPTIONAL”

Masterclass on January 22!

 What if you could enjoy a doctor’s lifestyle without depending on your clinical paychecks?

HOW TO MAKE YOUR JOB OPTIONAL”

Masterclass on January 22!

 What if you could enjoy a doctor’s lifestyle without depending on your clinical paychecks?

Accelerating Wealth Is Now open!

Don’t miss out! Grab this golden opportunity to enroll in Accelerating Wealth.  Enrollment ends December 8th.

Days
Hours
Minutes
Seconds

Zero to Freedom is Now Open!

Don’t miss out! Grab this golden opportunity to enroll in Zero to Freedom. Enrollment ends January 30th. 

Days
Hours
Minutes
Seconds

Zero to Freedom is Now Open!

Don’t miss out! Grab this golden opportunity to join the Spring 2024 Zero to Freedom course!

How to track hours for Real Estate Professional Status

For doctors and high-income professionals diving into real estate investing, achieving Real Estate Professional Status (REPS) is one of the only ways to significantly lower your income taxes and in some cases, completely eliminate it (like we did for 7 years in a row). However, claiming this benefit requires you to carefully navigate the complexities of qualifying for this status. A big part of this complexity involves meticulous tracking of hours spent on real estate activities. Why? Because qualifying for REPS is all about the hours. 

 

[Disclaimer: We are not accountants, lawyers, or financial advisors, so please consult your own team of professionals about the topics covered in this article.]

 

Qualifying for REPS

As one of our CPAs once told us, qualifying for REPS is a “bright line rule” based on hours. We have a detailed explanation of these rules in another article, but in brief, in order to qualify for REPS, you must spend at least 750 hours on real estate activities, and these activities must constitute more than half of the total professional hours worked within the year. There is another rule hidden in these requirements, also hours based, called material participation. 

Types of REPS Hours to Track

One of the most common questions we get from students of our Zero to Freedom course is, “does [type of activity] count as REPS hours?” For example, many ask, does the time I spend on the course count as REPS hours? What about driving time to and from my rental? What about the time I spend on bookkeeping for my rentals? As far as we know, the IRS has never published guidelines specifying activities that count as REPS hours. However, we do know from reviewing past legal cases that some hours are more likely to be counted as REPS hours, while others are likely to be denied. For example, the time spent actively engaged in your properties is more likely to be counted as REPS hours. This includes time spent leasing your property, managing the day-to-day operations, overseeing renovations, and any other tasks directly related to your real estate investments. This can include phone calls, meetings with agents or contractors or responding to tenant repair requests. It’s crucial to document the nature of each activity meticulously, as this detail can be pivotal in the event of an audit. What about the other hours that aren’t specific to a property you own and manage? Like those hours spent on coursework? We have consulted many CPAs on this topic and all of them tell us the same thing: track all of the hours you spend on real estate and let the IRS determine what counts and what doesn’t count in the unlikely event that you’re audited.

Options for tracking REPS hours

There are several methods available for tracking hours, ranging from traditional pen and paper to software applications designed for time management. The software tools can range from simple spreadsheets or dedicated time-tracking apps. We personally like to track hours using a calendar app like Google Calendar. Since I have a virtual assistant, many of my appointments are already in the calendar. I also ask any vendors I work with to send me calendar invites. This helps me avoid having to double enter something that has already been entered by someone else. I then get in the habit of planning out my calendar with not only appointments but also specific tasks that I need to do that day.  Regardless of the method chosen, the key is to stay consistent with one method or tool rather than switching from pen and paper one day to a software tool another day.

The most important word for tracking REPS hours: Contemporaneous 

The IRS values contemporaneous records, meaning that hours should be logged as they occur rather than being reconstructed retroactively. This approach lends credibility to your records and can significantly bolster your case if your REPS claim is ever challenged. Making it a habit to record your activities daily or weekly can ensure that your tracking is both contemporaneous and comprehensive. One of the best ways to do this is, schedule time in your calendar to log your hours.

You’ve tracked your REPS hours, now what?

It’s important to note that the detailed hour logs you’ve compiled so meticulously are not submitted annually to the IRS and are only required in the event of an audit. So be sure to save it in a safe place because you’ll need to produce these records to substantiate your claim effectively. 

Why so serious about tracking REPS hours?

Beyond the mechanics of tracking hours, it’s essential to understand the broader implications of qualifying for REPS. Achieving this status allows you to deduct all of your real estate losses against other forms of income, which is a huge tax advantage for high earners. However, it also underscores the need to take it seriously. The IRS isn’t handing you this tax advantage for nothing. You have to take it seriously! If you want to learn more about how to legally qualify for REPS, CLICK HERE.

Bottom line thoughts

For doctors and high-income professionals exploring real estate as a pathway to financial independence, the benefits of qualifying for REPS are clear. However, these benefits come with the responsibility of rigorous time tracking and record-keeping. As outlined in the article, you’ll want to carefully track ALL hours you spend on real estate, whether you think it will count or not. Also, stay consistent with the method/tool that you use to track, and provide as much detail as possible. At the end of the day, if you’re serious about REPS and you’re acting like a real estate professional, not a real estate amateur, then you should have no problem justifying your REPS hours. 

Do you want to learn how to creatively fund your real estate portfolio and achieve financial freedom? Join the conversation! Follow our Semi-Retired MD  Facebook page and join our Doctors or Professionals  group!

Semi-Retired M.D. and its owners, presenters, and employees are not in the business of providing personal, financial, tax, legal or investment advice and specifically disclaims any liability, loss or risk, which is incurred as a consequence, either directly or indirectly, by the use of any of the information contained in this blog. Semi-Retired M.D., its website, this blog and any online tools, if any, do NOT provide ANY legal, accounting, securities, investment, tax or other professional services advice and are not intended to be a substitute for meeting with professional advisors. If legal advice or other expert assistance is required, the services of competent, licensed and certified professionals should be sought. In addition, Semi-Retired M.D. does not endorse ANY specific investments, investment strategies, advisors, or financial service firms.

Share

Hi, we’re Kenji and Leti

we provide coaching and mentorship for doctors and high-income earners

Several years ago, we were newlyweds working as full-time hospitalists. On paper, it looked like we had everything: the prestigious careers, the happy marriage, the luxurious rental home, the cars, etc.

But in reality? Despite having worked for several years, we had very little savings. Despite our high income, we had very little freedom in terms of time or money.

One thing was clear: we had to do something.

ready to see if
real estate is right
for you? Take The
free Quiz!

If you’re just getting started in your investing career, we have a free resource ready for you. Answer a few quick questions, and you’ll receive a FREE download to help get you results.

Search the Blog

view more posts

Explore

GET STARTED

search