Short answer: many can. Real estate professional status is one of the most valuable designations in the tax code for agents who own rentals, and most agents either don't know they qualify or have never had anyone walk them through it.
Why it matters
Normally, losses from rental property are passive. They can only offset other passive income, so for most people they sit on the shelf year after year. If you qualify as a real estate professional and materially participate in your rentals, those losses can offset your active income instead. For an agent, that means rental losses can reduce the tax on your commissions.
Combine that with depreciation and a cost segregation study on a newly purchased rental, and the first year deduction can be large. That is why this designation comes up so often with high producing agents.
The two tests
To qualify for a given year, you generally need to meet both of these:
- More than 750 hours during the year in real property trades or businesses in which you materially participate.
- More than half of all the hours you work in any job or business during the year are in those real property trades or businesses.
Real estate brokerage is one of the trades that counts, along with development, construction, rental, management, and a few others. For a full time agent with no other job, the second test is usually the easy one. The 750 hours is where documentation matters.
The employee trap
Hours you work as an employee don't count toward these tests unless you own at least 5 percent of the business you work for. Most agents are independent contractors, so this isn't an issue. But if you're paid as a W2 employee of a brokerage or a team, your setup matters, and it's worth reviewing before you count on this strategy.
Married couples
If you file jointly, one spouse has to meet both tests on their own. You can't add your hours together to reach 750. The good news is that only one spouse needs to qualify for the household to benefit. If one spouse is a full time agent and the other has a W2 job, the agent spouse can carry it.
You still have to participate in the rentals
Qualifying as a real estate professional is step one. You also need to materially participate in your rental activities. If you own several properties, there is an election that lets you treat them all as one activity, which makes the participation test far easier to meet. Missing that election is one of the most common and expensive mistakes we see.
Keep a log
The IRS challenges this status regularly, and the taxpayers who lose usually lose on records. Keep a contemporaneous log of your hours: showings, listing appointments, client meetings, property management, and time spent on your rentals. A calendar plus a simple spreadsheet updated weekly beats trying to reconstruct a year from memory.
The bottom line
If you're a licensed agent who owns rentals or is thinking about buying one, real estate professional status deserves a serious look. The rules are specific, so it's worth planning before the year ends rather than discovering at filing time that the hours or the election weren't there.
This article is general information, not tax or legal advice for your situation. Tax rules change and the details matter, so talk with a qualified advisor before acting on any strategy.