If you’ve bought or sold a home—or are thinking about it—you may have heard whispers about ways investors use real estate to lower their tax bills. But here’s the catch: misunderstanding these strategies can do more harm than good. Whether you're building a rental portfolio or considering an Airbnb, here’s what you really need to know to avoid expensive mistakes.

REPS Material Participation: It’s Not Just About the Hours

The Real Estate Professional Status (REPS) designation is often misunderstood. It’s not just about clocking 750 hours in real estate work each year—it’s about proving material participation in each rental activity. That means showing you were actively involved in decisions and operations. Just hitting an hourly minimum won’t cut it if your involvement is passive or poorly documented.

Married Couples: Only One Spouse Needs to Qualify for REPS

Good news for married folks: only one spouse needs to meet the REPS requirements to unlock the tax benefits. If your partner works full time but you’re handling the rentals, you may still be able to claim active losses against your household income. This can make a major difference for high-income earners looking to offset tax liability.

The STR “Loophole”: Yes, It’s Real—but No, It’s Not for Everyone

You’ve probably heard about the “STR loophole”—and yes, it’s legit. If you rent a short-term rental (STR) like an Airbnb for an average of less than seven days, and materially participate in its management, you may be able to deduct losses without qualifying for REPS. But here’s the caveat: this applies only to certain properties and requires you to stay hands-on. Outsourcing management to a cohost or company? That could disqualify you.

Documentation Mistakes That Can Sink You in an Audit

Even if you meet all the requirements, poor documentation can ruin your case during an audit. Keep detailed logs of hours worked, decisions made, income received, and expenses paid. Inconsistent records or vague time entries are common red flags. The IRS doesn’t just want to see numbers—they want to see proof.

Final Thoughts

Tax strategies like REPS and the STR loophole can be game changers—but only when used correctly. If you're a home buyer, seller, or investor, take time to understand the rules and keep clear documentation. A small oversight can cost thousands, while a little planning could save you just as much.