May 22, 2026
High-earning property investors are using a decades-old tax status to drastically reduce their taxes — in some cases, to $0. A Minneapolis couple, Jennifer and Paul Tessmer-Tuck, leveraged REPS (Real Estate Professional Status) to slash their biggest expense.
Jennifer is a physician and Paul a teacher. With their 16 properties, Paul dropped to part time so he qualifies as a real estate professional and materially participates in rental activity to meet eligibility. To earn that status, you must log more than 750 hours per year on property activities you personally perform, and spend more than half of your total working hours in real estate.
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“If we can reduce the amount of money that we’re paying in state and federal taxes and generate some cash flow from our rentals, that really gives us a leg up financially,” Jennifer told Business Insider.
REPS, the IRS designation, can allow rental losses that are typically considered passive to offset active income, such as W-2 wages and 1099 earnings. Because only one spouse needs to qualify and the losses can be used to offset both incomes, it has been nicknamed the “marital loophole.”
To access the tax advantages, investors still need to show a loss — but in real estate, it is possible to generate positive cash flow while reporting a tax loss through deductions such as depreciation, expenses, repairs, renovations and replacements.
A DIY dream?
Letizia Alto and Kenji Asakura, who are also medical doctors and spoke to Business Insider, explained to Moneywise how they used the same tax strategy. The couple claimed REPS in 2015, and their portfolio ranges from single-family homes to portions of larger multifamily buildings.
Asakura was able to meet the requirements because they bought enough properties and put in “real, substantive time managing, improving and overseeing them,” Alto said.
The couple was able to zero out their medical salaries from federal income taxes for seven years in a row. Alto emphasized that people need a strong team, including a real estate-savvy accountant, to ensure compliance, as “This is not something you want to do blindly.”
“Your outcome depends entirely on your situation: your real estate portfolio size, your W-2, 1099 or business income and how much in losses your portfolio generates,” Alto added. She said you don’t need a large portfolio to qualify, and she has seen success stories with just a few properties because the owners were involved — doing some of the rehab, handling day-to-day self-management and putting in real work.
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Some costly caveats
Alto warns that REPS requires a significant time investment, and the benefits grow more lucrative as the portfolio grows. If one spouse is dropping to part-time work, you need to buy enough real estate to generate enough depreciation to justify the loss in income — especially for high earners.
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Keeping up-to-date documentation is critical in case of an audit.
“Every week, Kenji tracks what he does for our real estate portfolio and how much time it takes. We don’t want to be going back a month later trying to reconstruct things from memory. Courts have thrown out REPS claims where people couldn’t produce real-time documentation,” she said.
What counts as a qualifying activity is very specific — questions such as “Does this phone call count?” and “Does this drive count?” are exactly where a good accountant can help. The couple also recommends logging more hours than the minimum in case some are later questioned or invalidated.
“You want a real cushion so that even if some hours don’t hold up, you can still clearly show you met the threshold. So we don’t aim for the minimum, we aim to have excess.”
The other requirement: real estate hours must exceed the hours spent in any other profession. If you log 1,000 hours at your job, you need more than 1,000 hours in real estate.
Just for the well-off?
Real Estate Professional Status must be re-established every year — you either meet the criteria or you don’t. As a result, Alto said she has seen people claim REPS one year while on maternity leave and working fewer hours, then the next year return to a fuller schedule and find that REPS no longer fits. Or one spouse qualifies one year, then goes back to working full-time the next, and instead uses a short-term rental to shelter W-2 income from taxes.
There is also a perception problem that trips people up, Alto said. “Real estate professional sounds like it means a licensed agent or broker. They think they need a certain degree or license to do it. This confusion alone may mean that some investors who could qualify never even ask the question.”
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Amanda Smith is an Australian freelance journalist and writer based in the New York City area who reports on culture/society, technology, and health.
