Locum Tenens + Real Estate: Using a Flexible Schedule for REPS

Under IRC §469(c)(7), rental real estate losses are treated as passive by default, meaning they're only deductible against other passive income, not against your clinical W-2 or 1099 earnings. Real Estate Professional Status is the exception: if you qualify, your material-participation rental activities are treated as non-passive, and losses (often driven by depreciation, including cost segregation and bonus depreciation) can offset your active clinical income directly.

To qualify, you have to clear two annual tests, both measured for the same tax year:

The 750-hour test rarely trips people up; most engaged real estate investors can hit 750 hours without much difficulty. It's the more-than-half test that eliminates the vast majority of full-time W-2 physicians. If you work a standard 2,080-hour clinical job (40 hours/week, 52 weeks), you'd need more than 2,080 hours in real estate to clear the more-than-half test, on top of clearing 750. That's effectively a second full-time job, which is why REPS is realistic almost exclusively for physicians who are part-time, not working clinically at all, or using what's often called the "spouse trick," where a non-clinical spouse qualifies for REPS on behalf of the household.

A locum tenens physician changes one side of that equation: total clinical hours for the year. If your assignment pattern produces materially fewer total clinical hours than a standard full-time job, the number your real estate hours need to beat is lower, which is what makes the more-than-half test, not the 750-hour test, meaningfully more achievable for a locum than for a continuously-employed W-2 physician.

It's tempting to describe this as "part-time REPS" or "REPS during your off-months." That concept doesn't exist in the tax code. The 750-hour test and the more-than-half test are both measured across the entire tax year, January 1 through December 31. There is no sub-annual or seasonal qualification. A stretch of low clinical hours in the spring doesn't qualify you for REPS treatment just during the spring; it contributes hours toward your full-year totals, which are what actually get tested.

What a locum's schedule genuinely provides is a more favorable full-year total. Consider two physicians who both spend 900 hours a year on real estate:

Same real estate effort, same 750-hour clearance, meaningfully different outcome on the more-than-half test, purely because of how the locum's clinical hours are structured across the year. That's the real, accurate mechanism behind the "flexible schedule helps with REPS" idea. It's not a special locum carve-out; it's ordinary math applied to a different total-hours picture.

If your clinical hours still make the more-than-half test unrealistic even with a locum schedule, there's a separate, lower-bar path worth knowing about: the short-term rental (STR) loophole. Under Treasury Regulation §1.469-1T(e)(3)(ii)(A), a rental activity where the average guest stay is 7 days or less is not treated as a "rental activity" under the passive activity rules at all, regardless of your REPS status. That means you never need to clear the 750-hour test or the more-than-half test for that property. You only need to materially participate in the STR activity itself, generally by clearing one of the standard material participation tests (such as 100+ hours and more participation than anyone else involved).

For a locum physician who can't realistically clear REPS's more-than-half test, even with favorable schedule math, the STR loophole is often the more practical strategy: a much lower hour bar, applied to a single property or portfolio of short-term rentals rather than your entire real estate activity. We cover the STR loophole mechanics, material participation tests, and self-rental traps in full detail on our dedicated STR Loophole guide.

Illustrative example, not a specific client outcome. Dr. Alvarez is a locum tenens hospitalist who worked four 6-week assignment blocks during the year, spending roughly 60 hours/week clinically during each block, plus some administrative and credentialing time between blocks. Between and around assignments, she and her spouse actively manage a small portfolio of rental properties they own directly.

Notice what made this work: it wasn't that Dr. Alvarez's real estate hours were unusually high for a real estate investor, 1,600 hours over a year is substantial but not extreme for someone actively self-managing a portfolio. What made it work was that her total clinical hours for the year landed around 1,440, well below what a continuous full-time W-2 job would have produced (roughly 2,080+ hours), because her locum assignments were concentrated into four 6-week blocks rather than spread across 52 weeks. That's the entire mechanism: fewer total clinical hours in the annual denominator, applied to the same, genuinely-earned real estate hours.

If Dr. Alvarez had instead worked a standard full-time hospitalist job at ~2,080 clinical hours, the same 1,600 real estate hours would still clear the 750-hour test but would fail the more-than-half test (1,600 is less than half of 3,680 combined hours). The real estate effort didn't change; the schedule did.

Every REPS claim lives or dies on documentation. The burden of proof is entirely on the taxpayer, and the IRS is not shy about disallowing REPS status when hour logs look reconstructed, rounded, or vague. This is where locum physicians have a genuine, underappreciated advantage.

Locum assignments already produce clean clinical records

Unlike a standard W-2 job, where "hours worked" often has to be reconstructed from memory or estimated from a salary, a locum tenens assignment is contract-based. Your agency or facility can typically produce exact start dates, end dates, shift schedules, and total hours billed for every assignment you worked. That record already exists, was created contemporaneously by a third party, and is essentially unimpeachable in an audit.

That existing clinical record does two things for a REPS claim:

• It establishes the denominator credibly. Instead of estimating your total non-real-estate working hours for the year, you can point to signed contracts and agency-issued hour statements showing exactly when you were and weren't working clinically.
• It gives your real estate log more credibility by contrast. When your real estate hour log shows concentrated activity during the exact windows your clinical calendar shows you were off assignment, the two records corroborate each other. That internal consistency is exactly what auditors look for, and exactly what's missing from many REPS claims built on estimates.