In context
REPS qualification requires both of the §469(c)(7) tests:
- More than 50% of personal services during the year are in real property trades or businesses in which the taxpayer materially participates
- More than 750 hours of services during the year in real property trades or businesses in which the taxpayer materially participates
Both tests apply on an individual basis under §469(c)(7)(B) — married couples cannot combine hours; one spouse must satisfy both tests.
The 50% test is the typical disqualifier for high-income W-2 earners with rental portfolios — a full-time W-2 job almost always exceeds 50% of personal-service time, blocking REPS qualification.
The aggregation election under §469(c)(7)(A) and Reg. §1.469-9(g) is typically required for REPS taxpayers with multiple rentals. Without aggregation, material participation is tested separately for each property — a near-impossible bar at scale.
Once REPS qualifies and aggregation is elected, all rental real estate is treated as non-passive — losses fully usable against wages, business income, interest, and dividends.
See /passive-activity/ for the topic hub.