Avery: Welcome back to another episode of the Short Term Show. So many of you are always asking questions about real estate professional status and the STR loophole and tracking your real estate professional status or REPS hours.

Avery: We have a really cool guest today that I think a lot of you, especially you physicians out there or other high-income W-2 earners, might find interesting. If you have an interest in all of that, I will go ahead and introduce Kirsten Limmer. Did I pronounce that right?

Kirsten: Right! I’m sorry. Yeah, you sure did. Yeah, the ones that I think I’m not going to.

Avery: I have a problem with that end up throwing me a curveball so bad, but glad I did that right. Sorry, uh, well, nice to meet you!

Kirsten: Nice to meet you.

Avery: Thank you so much for coming on, and you are the founder of REPS Tracker. So, let’s talk a little bit about that, and then I want to backtrack to your background in real estate investing first. Let’s talk about what REPS Tracker is.

Kirsten: Yeah, yeah, so REPS Tracker is an app and a website. It’s an online tool and mobile app to track real estate professional hours and hours for the short-term rental loophole. So, whether you’re trying to qualify for REPS or for the short-term loophole, it can track both in kind of a separate platform within the app.

Avery: Can I give a brief primer on what both of those are? Unless you think your podcast listeners are really just experts on this already?

Kirsten: No, let’s start from the very beginning.

Avery: Explain it to all of us, myself included, like I’m five. Why do we need this? What is the track? Why do we need to track these things?

Kirsten: Yeah, so, um, so there are two separate tax loopholes, but they are very similar. They’re almost like brother and sister tax loopholes. So, for real estate professional status, well, actually, I should say, I should first talk about the benefits because, why? Why do you even want to go down this road? The reason is normally when you have a W-2 income, and then you also have rental real estate, typically the way that the tax code works is that your W-2 income is considered non-passive income, and your rental real estate is considered passive income. Because of this, it’s almost like there’s a firewall between them; you could think of them as two separate buckets. So, whatever you’re making or expensing in one bucket, you can’t add or subtract to the other bucket. That becomes really important because most people who have a rental empire will be able to show a loss on their taxes. Even though they may have a profitable rental empire, they’re still able to show a loss on their taxes. When that same person, or they’re married to somebody who has a really high W-2 income, it becomes really important to be able to take that loss and suspend it over years and years and years. Take that loss and subtract it from their W-2 income. That can be a super powerful strategy to save money on taxes today, rather than suspending it over time. The only way you can do this is by having real estate professional status or declaring the short-term rental loophole.

Kirsten: So, being able to qualify for the short-term rental loophole or real estate professional status, also known as REPS, is important. To qualify for REPS, you must show that you’re a real estate professional in the eyes of the IRS. That’s a little different than being a real estate agent. Clearly, you’re a real estate professional in the real world, but for the tax part of the world, it’s a little bit different. You have to have 750 hours in the real estate world, and then you also have to show that you materially participate in your rentals. The kicker for real estate professional status is that you also have to show that you spend more time in real estate than you do in anything else. So, your W-2 job, side gig, or all of that stuff cannot be more than your real estate hours. That becomes really hard for a lot of people that have W-2 jobs because it’s hard to show the IRS that you have two full-time jobs.