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Not possible. Is that simple. If you have a W2 job you cannot become a REP. I can explain further but unless you plan to leave your W2 job or your spouse who doesn’t work will be making the qualification, just drop the idea. I’ve seen it litigated and the IRS does not screw around on this.
This is blatantly false. It totally depends on what you do at your W-2 job.
doesn't depend if you have actual ownership stake (i.e. will get paid partially on K-1 vs. all on w2)?
My understanding is that in order to qualify for REP tax status, the amount of time spent working on your real estate portfolio (properties that you have >5% ownership in) must account for more than half your total working time. So if you work a W2 job at 40 hours / week, you must also work 41 hours / week managing your own portfolio. Apparently researching new investments doesn’t count for hours which is a bummer…
At the end of the day, its up to your CPA to make a determination. Some CPAs have a more lenient interpretation than others.
Deal research does actually count in some situations. For example if your corporation pays you to do so.
It's not "up to your CPA" it's up to the IRS, the auditor they send after you and the tax court they drag you into.
It's hilarious that you think this is how it works. Go watch another Grant Cardone video.
lol someone's fired up. Nice edit to add in the Grand Cardone comment
The OP asked how he could take losses from his K1. There are CPAs out there who will file a W2 employe as a REP. Some people have aggressive tax strategies and pay up if they need to after an audit.
What was the benefit again of being considered at REP?
Tax classification.
you can write off RE losses against ordinary income
You don't have the passive activity loss limitations, that's the big deal. So if you have a rental portfolio that throws off tax losses (like from depreciation and stuff like that), you can claim it against ordinary earned income (i.e. your w2 income). With out REP status, it fully phases out above $150k AGI I think. This is why I stopped wanting to own rentals as my income progressed (and sold one as I could recognize "suspended losses").
This is a BIG deal if you have enough tax losses from passive activities and other income which it could shield.
Only way I've seen this work for w-2 earners is when a non-working spouse, works in the family "real estate business", and can meet the IRS tests (select REP and claim big losses and you are heading direct for audit land so I've heard, hence be prepared).
If you are part true "owner" (and getting K-1s as a result), your work may qualify (even if also getting w2), but need to really get with good CPA on the matter. If all your comp is from w2 and you are looking to use REP to claim losses from a personal rental portfolio or something like that.... good luck.
100% correct
Yes when I worked for a REPE fund everybody on the investment/AM team used the QREP tax classification. I discussed it with my accountant and he said I qualified. I suggest you discuss with a CPA.
Did most people have significant ownership?
I don't think the guys are blackstone repe are allowed to do this. Maybe at a small development shop if you're a partner or something.
Talked to a CPA you need a 5% ownership in the company to count company hours to the 750 hours, however if you can prove you spent 750 hours on those investments outside of your company you can take the REP status.
Basically if you log hours setting up bank accounts, internal analysis for yourself ect. you can make it. However, without being a 5% owner you get stuck in a weird spot where an audit would wreck you trying to back date hours.
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