Real Estate Professional Status Documentation

Real estate professional documentation is not a supplemental formality. It is the mechanism by which a taxpayer proves a factual determination that the IRS has authority to examine. The underlying statute does not require any particular form or filing; instead, it imposes a factual test that must be substantiated if challenged.

Tax Court cases on REPS consistently turn on the quality of the documentation rather than the credibility of the taxpayer's testimony. Courts have found that even sincere, credible taxpayers who genuinely performed the hours cannot prevail without contemporaneous records corroborating the hour counts they claim.

Contemporaneous means prepared at or near the time the services were performed. This does not require a real-time system, but it does require records that reflect the situation as it actually existed during the year, not as reconstructed from memory months or years later.

Courts have drawn a distinction between records that appear to be maintained throughout the year and records that appear to have been assembled after the taxpayer received an audit notice. Telltale signs of post-hoc reconstruction include uniform, round-number hour entries; identical task descriptions across many dates; and records with no variance or specificity. Examiners are trained to identify these patterns.

A compliant REPS time log captures four elements for every qualifying service: the specific date, the property address or activity name, the nature of the task performed, and the time spent. The task description should be detailed enough to distinguish between different types of qualifying activities and to make clear that the activity is within the enumerated real property trade or business categories.

Acceptable task descriptions include: "inspected HVAC units and met with HVAC contractor to review repair proposal," "processed tenant applications and ran background checks for Unit 4," or "negotiated roofing contract and signed agreement for Building B." Vague entries such as "property work" or "real estate activities" are easily challenged and provide little protection.

The log should be updated at least weekly. Daily entries are more defensible. Any gaps in the log that correspond to periods where no qualifying activity was performed should be left blank rather than filled in later, which preserves the integrity of the record.

A structured 750 hour log organizes qualifying hours by property, by month, and by activity type, enabling the taxpayer and their advisor to quickly calculate totals by property for the material participation analysis and totals across all properties for the 750-hour and more-than-half tests.

The more-than-half test requires documentation of non-real-estate personal service hours as well. If the taxpayer is a W-2 employee, employer payroll records or a separate log of employment hours establishes the baseline against which real estate hours are compared. If the taxpayer operates other businesses, time in those businesses must also be tracked.

The calculation divides total real estate hours by total personal service hours across all activities. The result must exceed 50 percent. Documenting only real estate hours without capturing employment or other business hours creates a gap in the substantiation that examiners will exploit.

A comprehensive real estate professional records package extends beyond the time log to include corroborating evidence that independently confirms the taxpayer's involvement. Useful supporting materials include:

• Emails and text messages with tenants, contractors, and vendors
• Signed contracts, repair authorizations, and lease agreements
• Bank statements reflecting payments to vendors and contractors
• Property inspection reports and maintenance records
• Photographs with geolocation metadata confirming property visits
• Invoices and receipts for materials purchased by the owner

These records do not replace the time log, but they provide independent corroboration that reinforces the credibility of the hours claimed. When the time log and supporting records tell a consistent story, the combined package is substantially harder to challenge.

Digital time-tracking tools, property management platforms, and calendar applications can satisfy the contemporaneous record requirement when they create timestamped entries at or near the time of service. The key is that the system generates a record automatically or with minimal delay, rather than relying on the taxpayer to enter information days or weeks later.

Useful digital tools include: property management software with activity logs (such as AppFolio, Buildium, or similar platforms), time-tracking apps that log service entries with GPS check-ins, shared calendars with detailed event descriptions, and task management tools that record activity completion with timestamps.

Exporting and archiving these records annually in a non-editable format (such as PDF or read-only exports) creates an audit trail that is more reliable than records that could theoretically be altered before an examination.

The standard statute of limitations for IRS assessments is three years from the later of the return filing date or the original due date. This means REPS records should be retained for at least three years. When the underlying claim involves omission of more than 25 percent of gross income, the limitations period extends to six years.

When real estate professional status generates large passive loss carryforwards that span multiple tax years, the records supporting those losses may need to be retained for as long as those carryforwards remain open on a return. Retaining records for seven years is a conservative standard that covers most scenarios.

Records should be stored in a manner that is accessible, organized by tax year, and backed up in at least one off-site or cloud location to protect against loss.

Investors with multiple properties face an additional documentation challenge: hours must be tracked at the property level to support both the REPS 750-hour total and the material participation analysis for each individual property (unless a grouping election has been made).

A well-structured log organizes entries by property first, then by date. Monthly totals by property allow the taxpayer to quickly assess whether material participation thresholds are being met at each asset before year-end. Investors who are falling short on a specific property can allocate more time there, or confirm whether the grouping election would be appropriate.

For strategies on how qualifying as a real estate professional with proper records affects the value of accelerated depreciation, see the analysis of how REPS changes cost segregation benefits.

When an IRS examiner reviews a real estate professional claim, they typically begin by requesting the taxpayer's time logs, calendars, and a narrative description of daily activities. The examiner will then cross-reference the records against other evidence of the taxpayer's activities, such as employer payroll records, travel records, and property manager logs.

Inconsistencies between the time log and independent evidence are used to argue that the hours claimed are not accurate. For example, if the time log shows the taxpayer at a property on a date when travel records place them in another city, the entire log may be questioned.

Taxpayers who have maintained contemporaneous, specific, and consistent records throughout the year are far better positioned in an examination than those who must argue from memory or general estimates. The cost of building a proper documentation system is trivial compared to the tax, interest, and penalties at stake in a failed REPS audit. For a broader overview of the qualifying requirements, see the complete real estate professional status guide, and for the cost segregation context where this status matters most, see the overview of how cost segregation works.