Yes, if you own the business. Property management is one of the real property trades or businesses listed in IRC §469(c)(7)(C), so the work itself can count toward real estate professional status (REPS). The catch is who signs your paycheck. Hours you work as an employee don't count unless you own more than 5% of your employer.
So a property manager who owns the management company can count those hours. A salaried manager at someone else's company usually can't, no matter how many doors they run.
There is a second step people miss. Passing the REPS tests doesn't make your own rentals nonpassive by itself. You also have to materially participate in them, and managing other people's buildings doesn't help with that.
For the REPS tests in full, start with our REPS and passive losses page.
The two REPS tests
Under §469(c)(7)(B), you qualify for a year only if both are true:
- More than half. More than half of the personal services you perform in all trades or businesses that year are in real property trades or businesses in which you materially participate.
- More than 750 hours. You perform more than 750 hours of services that year in real property trades or businesses in which you materially participate.
On a joint return, one spouse has to pass both tests alone. See what counts toward real estate professional hours for the hour rules.
Property management is on the list
Section 469(c)(7)(C) defines a real property trade or business as "any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business." Management and leasing are both named.
The regulations draw a line between two kinds of day-to-day work. Treas. Reg. §1.469-9(b)(2)(ii)(H) calls it "real property operation" when an owner of the property runs it. Treas. Reg. §1.469-9(b)(2)(ii)(I) calls it "real property management" when a professional manager does. The regulation defines a professional manager as "a person responsible, on a full-time basis, for the overall management and oversight of the real property or properties and who is not a direct or indirect owner of the real property or properties."
In plain terms, running rentals for outside owners is a real property business. That part isn't in doubt.
The rule that decides most cases: the 5% owner test
Section 469(c)(7)(D)(ii) says "personal services performed as an employee shall not be treated as performed in real property trades or businesses." It doesn't apply if you are a 5-percent owner of your employer, as defined in §416(i)(1)(B). IRS Publication 925 explains that you were a 5% owner "if you owned (or are considered to have owned) more than 5% of your employer's outstanding stock, outstanding voting stock, or capital or profits interest."
Treas. Reg. §1.469-9(c)(5) adds two details:
- Employee hours still count in the total. They are treated as performed in a trade or business, just not a real property one. So a W-2 job raises the bar for the more-than-half test.
- Ownership is tracked during the year. If you were a 5% owner for only part of the year, only the hours you worked while you were a 5% owner count.
The Tax Court applies this rule as written. In Calvanico v. Commissioner, T.C. Summ. Op. 2015-64, a licensed real estate appraiser worked as an employee of an accounting firm. He didn't own 5% of it, and his employee hours didn't count. The type of work didn't save him.
Three common setups
You own the property management company
If you own more than 5% of the company, or you run it as a sole proprietor, your management hours can count toward both tests. You still have to materially participate in the management business, which is rarely a problem for someone who runs it full time. Keep a log anyway.
You are a W-2 employee of a property management company
If you own 5% or less, your hours at work count toward your total hours but not toward real estate hours. Say you work 2,000 hours a year as a salaried manager. To pass the more-than-half test, you would need more than 2,000 hours of qualifying real estate work somewhere else, such as your own rentals, on top of the job. That is the same wall full-time employees in other fields hit. See why you can't deduct rental losses against W-2 income.
If you are being offered equity, the timing matters. Hours count only from the date your ownership goes above 5%.
You own rentals and hire a property manager
Your manager's hours are not your hours. REPS looks only at the services you personally perform. Paying a manager doesn't help you pass the 750-hour test, and it can hurt you on material participation.
Two rules work against you here. First, Temp. Treas. Reg. §1.469-5T(f)(2)(ii) says work you do as an investor, such as "studying and reviewing financial statements or reports on operations of the activity," doesn't count unless you are directly involved in day-to-day management. Reading the monthly owner statement from your manager is investor work. Second, two of the material participation tests ask whether you participated more than anyone else. A full-service manager often logs more hours on your building than you do. See material participation vs. active participation.
Qualifying is only half of it
Once you pass both REPS tests, each rental is still tested on its own for material participation, unless you make the election to treat all your rentals as one activity. Section 469(c)(7)(A) and Treas. Reg. §1.469-9(e)(1) set that rule.
Treas. Reg. §1.469-9(e)(3)(i) also says a real estate professional can't group rentals with any other activity, such as a management or construction business. Then §1.469-9(e)(3)(ii) gives property managers a narrow rule. You can participate in your rental through a management business, even one run through a separate entity. But the regulation counts that management work "only to the extent it is performed in managing the taxpayer's own rental real estate interests."
So if your company manages 300 client units plus your own fourplex, only the time spent on your fourplex counts toward material participation in the fourplex. All 300 client units still help you pass the REPS tests. They don't make your own rental nonpassive.
For owners with several rentals, the election under Treas. Reg. §1.469-9(g) can make material participation easier to show, because all your rental hours are pooled. It is binding in later years, so weigh it first. See how to make the REPS grouping election.
A simple example
These are hypotheticals, not client results.
Owner-manager. Ana owns 100% of a management company and works 1,800 hours in it during 2026. She has no other job. She also owns three rentals and logs 220 hours on them through her company. Her 1,800 management hours count, so she passes both REPS tests. With the grouping election, her 220 hours on her own rentals are pooled, and she can show she materially participated in them if she meets one of the seven tests, for example more than 100 hours and more than anyone else. Her rental losses can then be nonpassive, subject to basis, at-risk, and the excess business loss limit.
Employee-manager. Ben is a salaried regional manager at a large management company. He owns no equity and works 2,000 hours. He owns two rentals and logs 300 hours on them. His 2,000 work hours count only in his total. His real estate hours are 300, which fails both tests. His rental losses stay passive, and the $25,000 allowance is phased out once modified AGI passes $100,000 and is gone at $150,000.
California is a separate answer
California doesn't conform to §469(c)(7). Under the FTB's Form 3801 instructions, rental activities stay passive for California even when you qualify federally. A property manager who uses REPS on the federal return will usually carry different passive loss numbers on the California return. See California real estate professional status and FTB 3801.
What to keep
- Ownership records. Your operating agreement or stock ledger showing your percentage, and the date it changed.
- A time log. Your management hours, and separately, the hours you spend on your own rentals. Courts give little weight to estimates made after the fact. See how to keep a REPS time log that holds up in an audit.
- Your W-2 or other job hours. You need them for the more-than-half test.
- The election statement, if you make the §1.469-9(g) election, attached to a timely filed original return.
If you run a management company and use AppFolio, Buildium, Yardi, or DoorLoop, see our property management software CPA page for how we work with those books.
Frequently asked questions
Can a property manager qualify for real estate professional status?
Yes, if the hours aren't employee hours. Property management is a real property trade or business under IRC §469(c)(7)(C). If you own the management company or more than 5% of your employer, your management hours count toward the more-than-half test and the 750-hour test. If you are an employee who owns 5% or less, they don't.
Do W-2 property manager hours count toward the 750-hour test?
Only if you own more than 5% of your employer. IRC §469(c)(7)(D)(ii) says services you perform as an employee are not treated as performed in a real property trade or business unless you are a 5-percent owner. Treas. Reg. §1.469-9(c)(5) still counts those hours in your total working hours, which makes the more-than-half test harder.
Does managing other people's properties make my own rentals nonpassive?
No. Qualifying for REPS is the first step. You still have to materially participate in your own rentals. Treas. Reg. §1.469-9(e)(3)(ii) counts management work toward your rentals only to the extent it is spent managing your own rental interests.
Do my property manager's hours count toward my REPS hours?
No. The REPS tests count only the services you personally perform. A hired manager's time can also make it harder to show you participated more than anyone else in the rental.
What if I become a 5% owner partway through the year?
Under Treas. Reg. §1.469-9(c)(5), only the hours you worked while you were a 5% owner count as real estate hours. Hours before that date count only in your total.
Does California recognize real estate professional status for property managers?
No. California doesn't conform to IRC §469(c)(7), so rental activities stay passive on the California return and suspended losses are tracked on Form FTB 3801.
Talk it through with us
Bring your ownership documents for the management company, your W-2 if you have one, last year's return, and whatever hours log you keep. We'll tell you whether your hours count, whether your own rentals clear material participation, and whether the grouping election helps. Book a new client introduction.
LaviCPA is a Los Angeles CPA firm for real estate investors. Shawn Lavi, CPA, is the firm's principal. Elias Lavi, CPA, is its founder and co-owner.