Maximizing Tax Benefits with Real Estate Professional Status (REPS) and Short-Term Rentals (STRs)

Today’s Micro-Business Tactic: Use Real Estate to Slash Your Tax Bill

You dedicate yourself tirelessly to your profession, putting in long hours and immense effort. Yet, despite all this hard work, a significant portion of your earnings is lost to taxes. It can feel discouraging and burdensome. But imagine if there were a legitimate strategy tailored specifically for physicians that could significantly diminish your tax obligations while simultaneously paving the way for wealth accumulation.

As someone who navigates both the medical field and the world of real estate investment, I've uncovered an extraordinary opportunity: by harnessing the power of Real Estate Professional Status (REPS) combined with Short-Term Rentals (STRs), you can experience profound tax savings potentially reaching six figures.

This method is not just about reducing what you owe; it's about strategically using existing tax laws to your advantage, allowing you to keep more of what you've earned through smart investments. REPS allows qualified professionals to reclassify their real estate activities as active income sources rather than passive investments, thereby unlocking substantial deductions often unavailable to others.

When paired with STRs—properties rented out on platforms like Airbnb—the potential for offsetting taxable income from your practice becomes even greater. Consider it akin to discovering a hidden path through a dense forest that not only leads you swiftly away from unnecessary financial pitfalls but also unveils vistas of financial freedom and growth previously obscured by conventional routes.

This strategic approach does more than lighten the tax load; it offers an evolutionary step towards securing long-term financial independence while maintaining compliance with legal standards. Engaging with this dual strategy demands careful planning and consideration, but for those willing to explore its potential, it presents an invaluable means of optimizing one's fiscal landscape without compromising on ethical or professional responsibilities.

Here’s what every entrepreneurial clinician needs to know.

1. What Is Real Estate Professional Status (REPS)?

REPS is a tax designation that allows real estate losses to offset active income (W-2 or 1099). Normally, rental losses are passive and can’t be used this way. But REPS changes that game.

IRS Requirements for REPS:

• Spend 750+ hours/year in real estate-related activities

• Spend more than 50% of total working time in real estate

This metric is nearly impossible to attain for a doctor working full time.

🏛️ Pro Tip: If you’re a busy physician, your spouse may be able to qualify for REPS on your joint return.

REPS Benefits:

• Deduct depreciation + operating expenses from W-2 or 1099 income

• Use cost segregation to front-load deductions

• Improve cash flow and reduce tax burden

If one spouse qualifies for REPS, long-term rental losses can offset the other spouse's high income.

This is like finding a backdoor tax refund.

2. STRs: The Legal Loophole That Bypasses REPS

STRs (Airbnb-style properties) offer the same tax benefits without the 750-hour REPS requirement.

How?

Because the IRS treats STRs as active businesses, not passive investments.

To Qualify:

• Guest stays average 7 days or fewer

• You materially participate using one of these:

  • ✔ 500-hour rule

  • ✔ 100-hour rule + most time of any individual

  • ✔ Substantial participation

STR Benefits:

• Depreciation offsets active income

• No need for the high bar of 750 hours to meet REPS designation by the IRS

• Leverage bonus depreciation + cost segregation for front-loaded write-offs

STRs let you run a business from your real estate. That means bigger deductions, faster.

3. Cost Segregation: The Engine That Powers Both

Cost segregation breaks your property into parts that can depreciate faster:

• Cabinets, floors, lighting — 5 years

• HVAC, appliances — 7 or 15 years

• Landscaping, driveways — 15 years

With a cost seg study, your first-year depreciation deduction might jump from $12,000 to $80,000+—especially powerful when paired with REPS or STR rules.

You can learn more about cost segregation studies in our free guide here.

🚀 Want to go deeper? Download Your Guide to STRs →

4. Real-Life Case Study: How I Used REPS + STRs to Save $46K in One Year

As a full-time physician, I couldn’t qualify for REPS—but my wife could. But I could qualify through our STR. Here’s what we did:

• 2 long-term rentals: $50K paper losses (applied via her REPS status)

• 1 STR (Simpli SoHa on North Beach): $75K depreciation in year 1

We applied $125K in deductions to offset my income.

💸 At a 37% tax rate, that saved us $46,250 in federal income tax in one year.

This strategy not only created cash flow but accelerated our wealth-building goals.

Bottom Line for Clinicians

If you want to:

• Build real wealth

• Offset your income legally

• Create lifestyle flexibility through STRs

Then this strategy is worth your attention. And yes, you can do this while practicing medicine.

Lessons from the Field

“The best investment on Earth is earth.” — Louis Glickman

"One of my clients just learned they could write off $112K in STR depreciation against their practice income… legally."

Tool of the Week: Your Guide to Short-Term Rentals

Unlock the secrets of STR investing, tax rules, and setup steps for physicians.

🔧 Download the Guide →

Scale with Coaching

“Want personal guidance? Our 1:1 coaching and consultations help you execute faster and smarter.”

Book a Strategy Consultation Session →

Get Started With 1:1 Business Coaching Today →

💼 Other Tools to Explore:

• Design Your Career Around Your Life – Your free lifestyle blueprint

• Doctor You Are a Business Course – Foundation for your micro-corp

• Join the PEA Explorer Membership – Access tools, coaching, and community