Real estate professional status and solar credits: what REPS does and does not do
By the Tax Field Guide editorial team. Published 2026-10-26. Facts checked 2026-10-26. Related strategies: Solar Investment Credits, Short-Term Rental Losses, Accelerated Depreciation.
Education only; not tax, legal or investment advice. Tax rules change, and how they apply depends on your facts. No outcome is guaranteed.
Real estate professional status (often called "REPS") is one of the best-known exceptions to the passive activity rules. It is sometimes mentioned in the same breath as solar credits. This guide explains what REPS does under the rules the IRS publishes, and where solar fits.
What real estate professional status is
You qualify as a real estate professional for a year if both of these are true:1
- More than half of the personal services you performed in all trades or businesses during the year were performed in real property trades or businesses in which you materially participated; and
- you performed more than 750 hours of services during the year in real property trades or businesses in which you materially participated.
Work as an employee does not count unless you own more than 5% of the employer.1 For most people with a full-time W-2 job outside real estate, the "more than half" test is the hard one.
What it does
For a qualifying real estate professional, rental real estate activities in which the person materially participates are not passive. Income or loss from them is reported as nonpassive.12 That is why REPS lets rental real estate losses (for example, from depreciation) offset other income such as wages. Material participation in the rentals is still required; REPS alone is not enough.1
Where solar fits
REPS changes how rental real estate is treated. The statute defines a real property trade or business by reference to activities such as real property development, construction, acquisition, rental, management and brokerage.2 Solar generating equipment is generally depreciated as 5-year property, not as real property.3 We have not found IRS guidance treating a solar equipment investment as a real property trade or business for this purpose. So, on its own, REPS generally does not turn a solar credit from a separate solar activity into a nonpassive credit.
What does make a solar credit nonpassive is material participation in the solar activity itself, measured by the material participation tests (for example, more than 500 hours in the activity during the year).1 The Tax Court has denied solar credits to an investor whose participation in the solar activity did not meet those tests.4 See material participation in solar and solar credits and the passive activity rules.
Where REPS clearly matters
REPS is relevant to strategies built on rental real estate depreciation, such as cost segregation. Short-term rentals with an average stay of 7 days or less are a separate case, because they are not "rental activities" under the passive activity rules at all; see cost segregation for short-term rentals.
Common questions
Does real estate professional status let me use solar tax credits against W-2 income?
Not by itself. REPS changes the treatment of rental real estate activities in which you materially participate. A solar credit is generally nonpassive only if you materially participate in the solar activity itself.
How many hours do I need for real estate professional status?
More than 750 hours of services in real property trades or businesses in which you materially participate, and more than half of all your personal services in all trades or businesses for the year.
Can a W-2 employee qualify as a real estate professional?
Hours worked as an employee do not count unless you own more than 5% of the employer, and more than half of all your working hours must be in real property trades or businesses, which is hard to meet with a full-time job outside real estate.
Education only; not tax, legal or investment advice. Talk to a qualified professional before acting.
Sources
- IRS Publication 925, Passive Activity and At-Risk Rules, https://www.irs.gov/publications/p925
- 26 U.S.C. §469(c)(7), https://www.law.cornell.edu/uscode/text/26/469
- 26 U.S.C. §168(e)(3)(B), https://www.law.cornell.edu/uscode/text/26/168
- Summary of Strieby v. Commissioner, T.C. Memo. 2025-28, https://www.currentfederaltaxdevelopments.com/blog/2025/4/3/navigating-the-murky-waters-of-investment-tax-credits-and-passive-activity-rules-a-deep-dive-into-strieby-v-commissioner