If your rentals are generating big paper losses but your tax bill on your W-2 income has barely moved, you are likely running into the IRS passive activity loss rules. This article breaks down, in plain English, how Real Estate Professional Status (REPS) and material participation can convert those “trapped” passive losses into nonpassive deductions that can actually reduce your current-year tax liability, especially in a 100% bonus depreciation world under the One Big Beautiful Bill Act.

I walk you through the REPS tests, the rental grouping election, how short-term rentals fit into the picture, and why clean, contemporaneous time tracking is non-negotiable if you ever face an IRS exam. The post includes a practical, numbers-driven example comparing a high-income couple with and without REPS, plus a step-by-step implementation checklist and a downloadable REPS Hours Tracker Template so you can start documenting your hours the right way.