How to Track REPS Hours for the IRS
Track REPS hours in a contemporaneous daily log noting date, activity, location, and hours. Real property trade or business activities count (leasing, repair, management, acquisitions, bookkeeping). Investor activities are excluded under Temp. Reg. 1.469-5T(f)(2). Tax Court rejects year-end reconstructed logs almost universally. The audit-defense standard is logs maintained during the year as the work happens.
What hours count toward the REPS tests
IRC Section 469(c)(7)(C) lists eleven real property trades or businesses: development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, brokerage. Time in any of these against the taxpayer's own real estate counts toward the 750-hour and more-than-half tests, provided the taxpayer owns at least 5% of the activity under Section 469(c)(7)(D)(ii).
Hands-on activities count: leasing meetings, tenant communication, lease signing, repair work, maintenance, property inspections, acquisitions due diligence, lender communication on existing properties, bookkeeping for the activity, supply runs to the property.
What hours do not count (investor activity exclusion)
Temp. Reg. 1.469-5T(f)(2) excludes investor-type activities from the participation count: studying financial statements, reviewing summary management reports, planning without active management, monitoring the activity in a non-managerial capacity. The exclusion is the most-litigated point in REPS cases.
Reading real estate news, attending educational webinars without acting on the content, researching financing options without commitment, monitoring property values via Zillow: all excluded. Hours that look like real estate work but fall under the investor exclusion do not count toward either test.
Travel hours under recent case law
Recent Tax Court decisions have rejected travel time to and from rental properties as participation. Time at the property doing actual work counts. Time getting to and from the property does not. The rule disproportionately affects out-of-state investors and is a frequent audit dispute point.
Plan REPS hour budgeting accordingly. An investor with three out-of-state properties may need to bundle multi-day visits to make the on-site hours efficient relative to travel time.
Format for the contemporaneous log
Reg. 1.469-5T(f)(4) accepts any reasonable method of proof. Apps (REPS Tracker, free options), Google Sheets, paper journals all qualify if maintained during the year. The defensible log includes for each entry: date, activity description (specific enough that the IRS can verify the nature of the work), location, and hours.
Three landmark Tax Court cases lost on inadequate documentation. Hassanipour (T.C. Memo 2013-88) rejected year-end estimation. Hakkak (T.C. Memo 2020-46) rejected calendar-based reconstruction without actual hour tracking. Antonyan (T.C. Memo 2021-138) rejected a log created after the audit began. The IRS wins almost every reconstructed-log case.
Supporting documentation
Supplement the log with corroborating documentation: invoices for materials purchased, receipts for supplies, tenant communication records with timestamps, dated photographs of work performed, calendar entries from before the audit was triggered. Multiple independent records support the log.
For REPS-qualifying spouses, both spouses keep separate logs if both contribute hours. The aggregation rule under Reg. 1.469-5T(f)(3) for material participation allows joint-filing spouses to combine relevant hours, but each spouse's REPS qualification is tested independently under Section 469(c)(7)(B).
Frequently asked questions
- How does WeCostSeg coordinate with my CPA?
- Every engagement follows the three-touch CPA Coordination Protocol. We send a preliminary analysis to your CPA on intake, share the draft report five business days before final delivery, and coordinate Form 3115 filing timing when a Section 481(a) adjustment applies. Your CPA never pays a fee.
- Does this analysis assume 100% bonus depreciation under OBBBA?
- Yes for property acquired with a binding contract on or after January 20, 2025 under Public Law 119-21. Property under a binding contract on or before January 19, 2025 stays on the legacy phase-down: 40% bonus in 2025, 20% in 2026, 0% in 2027 and after.
- Is the five-year audit defense included?
- Yes. Every WeCostSeg engagement includes five years of written audit defense at no extra cost. The defense aligns to the 13 Principal Elements of a Quality Cost Segregation Study under IRS Publication 5653 Chapter 4.
- Can I get a free preliminary analysis?
- Yes. Submit your property details via the free proposal form or WhatsApp. Our engineer returns a written estimate of your first-year deduction within four business hours during US Eastern hours. No payment, no contract.
- Do investor activities count if I am full-time real estate?
- No. The exclusion under Temp. Reg. 1.469-5T(f)(2) applies regardless of how full-time the taxpayer's real estate focus is. Investor activities are excluded by definition.
- Can my spouse and I combine REPS hours?
- For REPS qualification under Section 469(c)(7), each spouse tests independently. For material participation under 1.469-5T, joint-filing spouses can combine hours under 1.469-5T(f)(3).
Zawwad Ul Sami, Founder
Zawwad Ul Sami is the founder of WeCostSeg, a founder-led cost segregation firm serving real estate investors across the US. He focuses on strategy, pricing, and the firm's overall direction.