A large slice of real estate investors own properties they have never stepped foot in. They bought in a market three states away because the numbers worked, they hired a local property manager, and they run everything from a laptop. That is a perfectly sound investment strategy. What trips people up is assuming that because they never visit, their hours cannot count toward Real Estate Professional Status.
They can. Here is why, and how to make sure yours do.
TL;DR: Physical presence at a property is not required for hours to count toward the 750-hour REPS test under IRC §469(c)(7). Remote management, tenant communication, leasing oversight, and vendor coordination all qualify as long as you materially participate in the activity and keep a contemporaneous log. Purely passive investor tasks, like reviewing financial statements or arranging financing, do not count (Treas. Reg. §1.469-5T(f)(2)(ii)).
Written by the REPS Time team, real estate investors who track Real Estate Professional Status and short-term rental material-participation hours, grounded in IRC §469(c)(7) and current Treasury guidance.
Does the IRS Require You to Physically Visit a Property for the Hours to Count?
No. The statute does not say anything about physical presence. IRC §469(c)(7) requires that you spend more than 750 hours in real property trades or businesses in which you materially participate, and that more than half of all your personal services for the year are in those activities. Neither the statute nor the Treasury regulations under Treas. Reg. §1.469-9 condition those hours on being on-site.
What matters is whether the time you spend is devoted to the active operations of the rental, not where you happen to be sitting when you spend it. Reviewing a lease renewal agreement from your home office in Ohio counts just as much as doing it from the driveway of the Phoenix property.
The distinction the IRS actually draws is between operating the rental and merely being an investor in it. Treas. Reg. §1.469-5T(f)(2)(ii) carves out "investor activities" from the hour count: reading financial reports, reviewing accounts, attending informational meetings about the property as an owner. Those do not count regardless of whether you are on-site or remote. But the active management work, coordination, oversight, and leasing that keeps the property running? That counts from anywhere.
What Remote Activities Actually Count Toward the 750-Hour Test
Here is a practical breakdown. Think of this as the test: is this something an active operator does, or something a passive investor does?
Activities that count:
- Responding to tenant maintenance requests and coordinating repairs with local contractors
- Reviewing and negotiating leases, rental applications, and tenant screening results
- Managing and communicating with your property manager (note the nuance below)
- Posting and managing vacancy listings, writing ad copy, fielding inquiries
- Handling rent collection issues, late-payment notices, and eviction proceedings
- Reviewing bids for capital improvements and making decisions on scope
- Bookkeeping and financial record-keeping for the property (not just reading the output, but actually doing the work)
- Researching local market rents to set or adjust pricing
Activities that do not count:
- Reading monthly statements your property manager sends you
- Reviewing loan documents or arranging financing (investor activity under Treas. Reg. §1.469-5T(f)(2)(ii))
- Passively attending a call where your property manager gives you a status update without you making decisions
The line between "managing your property manager" (counts) and "receiving a report from your property manager" (does not count) is real, and it matters at audit. If you are reviewing work orders, approving expenditures, and making judgment calls about tenant situations, that is active management. If you are opening a PDF summary and filing it away, that is investor activity.
You can read more about which specific tasks survive IRS scrutiny in our deep-dive on activities that do not count toward REPS hours.
The Property Manager Trap: A Common Misconception
Having a property manager does not disqualify you from REPS, but it does change your hour count. The hours your property manager spends on the property are not your hours. You cannot count time a third party works on your behalf.
What you can count is your time overseeing that property manager. And if you are doing it right, that oversight is substantial: approving repairs, reviewing lease terms, resolving tenant escalations, evaluating performance, and making strategic decisions about the asset.
Some investors with property managers genuinely do not have enough of their own active hours to clear 750. That is an honest answer, and it is worth running the math before you plan your tax return around REPS. Others find they spend far more time than they realized, once they start actually tracking it. The full breakdown of how the 750-hour rule works is worth reading before you assume you are either in or out.
A Worked Example: What Is Actually at Stake
Say you own two out-of-state long-term rentals and a W-2 job paying $220,000 a year. Your rentals together generate $18,000 in paper losses after depreciation. Without REPS, those losses are passive under IRC §469 and cannot offset your W-2 income. They carry forward indefinitely.
Now say you track your hours carefully for the year and log 810 hours of active real estate work: 340 hours on property one, 310 hours on property two, and 160 hours of combined leasing, vendor management, and bookkeeping that you appropriately attribute across the portfolio. Real estate work also makes up more than half of your total personal services for the year.
You qualify as a real estate professional under IRC §469(c)(7). You make the grouping election under IRC §469(c)(7)(A) to treat your rentals as one activity, which means the combined hours satisfy material participation. Your $18,000 in rental losses is now non-passive.
At a 37% combined federal marginal rate, that is $6,660 in federal tax savings in year one alone, from losses that would have otherwise just sat on the shelf. If you add a cost segregation study that accelerates another $35,000 of depreciation into year one, the non-passive losses grow to $53,000, and the savings jump to roughly $19,600. That is a meaningful number.
The hours that made all of it possible were logged remotely. Not a single one required a flight to Phoenix.
How to Document Remote Hours Without Getting Burned at Audit
This is where remote investors tend to get sloppy, and sloppiness is expensive. The Tax Court has repeatedly rejected reconstructed logs, rounded estimates, and vague descriptions. Almquist v. Commissioner rejected after-the-fact guesstimates and imposed a 20% accuracy penalty. Penley v. Commissioner threw out rounded hours with no time detail.
You do not need start and end timestamps by regulation, but your log needs to be specific enough to be credible: the date, the property, the task, and enough detail that a reviewer can see what you actually did. "Reviewed lease renewal terms for Unit 4B tenant, coordinated with property manager on renewal vs. turnover decision" is a log entry. "Property stuff" is not.
For remote investors, the paper trail actually works in your favor. Your emails, text threads with property managers, DocuSign records, vendor invoices you approved, and calendar entries all create corroborating evidence. The IRS likes corroboration. Save those records.
A contemporaneous log for material participation built up in real time, not reconstructed in April, is the single most important thing you can do. REPS Time is built for exactly this: logging real estate hours as you go, tagged by property and activity type, so your records are already organized when you need them.
Does Travel Time Count If You Do Occasionally Visit?
Sometimes remote investors do fly out to inspect a property, meet a contractor, or handle a turnover situation. When that happens, travel time to and from the property is its own nuanced question. The short version: travel directly connected to the management activity can count, but commuting-style travel generally does not. Read that post before counting flight hours.
The Grouping Election: Why It Matters for Out-of-State Portfolios
If you own multiple rentals, making the grouping election under IRC §469(c)(7)(A) lets you treat all of them as a single activity for material participation purposes. This is especially important when you have two or three properties and no single one clears the hour threshold on its own.
Without the election, you need to materially participate in each property separately. That is a much harder standard for a remote investor with a property manager on each one. With the election, your combined hours across all properties satisfy material participation for the group.
The election needs to be made on a timely filed return. If you missed it in a prior year, there is late relief available under Rev. Proc. 2011-34, but it comes with conditions. Our post on the REPS grouping election covers both how to make it and what it costs you if you choose not to.
Key Takeaways
- The 750-hour test under IRC §469(c)(7) has no on-site requirement. Remote hours count.
- Active management tasks count. Passive investor tasks, like reading reports, do not (Treas. Reg. §1.469-5T(f)(2)(ii)).
- Having a property manager is fine, but only your oversight hours count, not theirs.
- Contemporaneous documentation is non-negotiable. Reconstructed logs fail at audit.
- The grouping election under IRC §469(c)(7)(A) is your friend if you own multiple out-of-state properties.
- The dollar savings can be substantial, especially when paired with depreciation, and those savings come from hours you were already spending.
FAQ
Can hours spent on email and phone calls count toward the 750-hour REPS test? Yes. If the calls and emails involve active management decisions, coordinating repairs, negotiating with tenants, or overseeing vendors, they count. Passively receiving a summary report from your property manager does not count, but actively working through a problem with them does.
Does the IRS require you to personally perform management tasks, or can you supervise a property manager and still qualify? You can supervise a property manager and count those oversight hours. What you cannot do is count the property manager's hours as your own. Your time spent reviewing their work, making decisions, approving expenditures, and directing the management of the property is yours to log.
What if most of my REPS hours come from one in-state property and the rest from out-of-state properties I never visit? That is fine. The 750-hour test looks at your total hours across all real property trades or businesses you materially participate in. Where the properties are located is not part of the test. Hours from the in-state property and the remote ones all pool together.
Can the Tax Court tell the difference between a well-kept remote log and a reconstructed one? Yes, and it has. Courts look for corroborating evidence: emails, invoices, contractor records, calendar entries. A remote investor who saves those records is often in a stronger position than an on-site investor who kept nothing. In Bailey v. Commissioner and related cases, the problem was not the location of the work but the quality of the documentation.
Do I need a separate log for each out-of-state property? If you have made the grouping election under IRC §469(c)(7)(A), you treat all properties as one activity, but you should still track hours by property. It makes your records cleaner, it helps you evaluate each asset, and if your grouping election is ever challenged, you will have property-level detail to fall back on.
Sources
- IRC §469(c)(7), real estate professional exception
- Treas. Reg. §1.469-5T, material participation tests
- Treas. Reg. §1.469-9, grouping rules for rental real estate
- IRS Publication 925, Passive Activity and At-Risk Rules
- Rev. Proc. 2011-34, late grouping election relief
- Almquist v. Commissioner, T.C. Memo. 2014-157
- Penley v. Commissioner, T.C. Memo. 2008-260
This article is for educational purposes only and is not tax or legal advice. Consult a qualified CPA familiar with real estate. Agents Invest LLC is not a CPA firm, law firm, or registered tax preparer.
