He Logged 2,500 Hours and Still Lost REPS: The Foradis Case

A taxpayer once told the Tax Court he had worked about 2,500 hours on his rental real estate in a single year. That is well past the famous 750 hour threshold everyone talks about. He still lost the deduction. He did not lose because he forgot a receipt or said the wrong words. He lost because the judge did not believe the hours, and because he was fighting on the hardest ground in the whole statute when easier ground may have been sitting right next to him.

The case is Timothy L. Foradis and Jessica L. Moore v. Commissioner, T.C. Summary Opinion 2024-13, decided in July 2024. The court disallowed a $22,376 rental real estate loss for the 2020 tax year. The loss came from a carriage house that Mr. Foradis built himself and then rented out as a short term rental starting in October 2020.

Mr. Foradis worked a full time job in 2020. The court accepted that he put in about 40 hours a week and took two weeks of vacation, which comes to roughly 2,000 hours of work as an employee that year.

He also testified that he spent about 2,500 hours building the carriage house, doing the work in the evenings after his job, on weekends, and during those two weeks off.

Real Estate Professional status under section 469(c)(7)(B) has two separate hour requirements, and people almost always remember only the first one:

• More than 750 hours of service in real property trades or businesses in which the taxpayer materially participates.
• More than half of the taxpayer's total personal service hours, across every trade or business, performed in real property trades or businesses. This is the 50% test.

The second one is what sank him. Because he had about 2,000 hours at his job, the 750 hour test was never really in play. To win, he needed more real estate hours than job hours, which meant more than 2,000 credible hours, not just more than 750. He claimed 2,500. The court did not buy it.

In plain terms, the judge found it implausible that a person could work 40 hours a week at a full time job and put in another 48 hours a week on construction. Run that across a year and you are left with about three hours a day for sleeping, commuting, eating, and the rest of life. That single observation is the whole case.

For most rental investors, the 750 hour number gets all the attention. It is a clean figure and it is easy to remember. But if you have meaningful work outside of real estate, a W2 job, a business, a consulting practice, the 50% test is usually the harder one, and it is the one quietly deciding cases like Foradis.

Watch how the bar moves with your other work. Someone with 300 hours of non real estate work needs more than 300 real estate hours, and still has to clear 750. Someone with 1,200 hours of other work needs more than 1,200. Foradis, with about 2,000 hours at his job, needed more than 2,000. The 750 hour test stopped being his ceiling and became his floor.

Two details most summaries skip are worth your attention, because they make the case sharper. First, the court never actually decided that his construction work counted as real estate professional time. The opinion says it assumed, without finding, that the building hours were qualifying service. Building your own rental is not an automatic source of qualifying hours, and the court simply did not need to reach the question, because the credibility problem killed the claim first.

Second, the evidence was not the headline failure. The court did not have to rule on whether his logs and receipts were good enough. Once the raw schedule looked impossible, the file was finished. Sit with that for a second: he may well have had documents, and it did not matter, because the story they told was not believable. For a fuller picture of how these claims fall apart, I went deeper on how investors lose Real Estate Professional status in its own article.

Before you ever reach Real Estate Professional status, there is a much gentler provision. Under section 469(i), many landlords can deduct up to $25,000 of rental losses against ordinary income with nothing more than active participation, which is a far lower bar than the professional tests.

The Foradises never even contested losing it. Their combined wages were about $161,000, over the $150,000 income ceiling where that $25,000 allowance fully phases out. In the words of one tax commentator, they were simply too rich for the middle class break.

This is the part that reframes the case. High earners lose the easy $25,000 door precisely because they earn too much, and that is exactly what pushes them onto the brutal 50% test in the first place. If you are a high income W2 earner, that is your starting reality. The simple safety net is already gone, so the path you pick next is the whole game.

Here is the detail that makes Foradis genuinely useful rather than just sad. The carriage house was a short term rental, managed starting in October 2020 by a company that handled cleaning, guest vetting, and security.

Short term rentals get their own treatment under the passive activity rules. If the average guest stay is seven days or fewer, the property is not a rental activity at all under Treasury Regulation 1.469-1T(e)(3). And if it is not a rental activity, the rule that makes rentals automatically passive never applies, which means you do not need Real Estate Professional status. You do not need 750 hours. You do not need to out work your 2,000 job hours. You only need to materially participate, which can be as little as 500 hours in the activity, or one of the other tests in Regulation 1.469-5T.

As far as the opinion shows, no argument about the short term rental rules was ever made. Mr. Foradis climbed the tallest mountain in section 469, out working a full time job, when a much smaller hill may have been right beside him. If you want the full strategy, I laid it out in the short term rental loophole guide.

Be honest about the catch, though, because this is where the lazy version of this advice falls apart. A management company is a real problem for material participation. If a manager is doing the cleaning, the vetting, and the security, you have to show that you did substantially all of the work, or at least more than 100 hours and not less than anyone else involved. Outsourced operations cut against you. On top of that, the property only ran about three months that year, which squeezed the time he had to build up hours. So the short term path was not free either. The lesson is bigger than any one rule: choosing the right theory matters as much as logging the hours, and you cannot choose the right theory if you cannot see your participation, your team's time, and your average stay while the year is still open.

REP Helper would not have made an impossible claim true. No software can. But strip Foradis down and it is a visibility failure. He did not see how weak his position was until a judge told him, and almost everything that went wrong is something you can watch in advance. Start with the door he never opened, because it is the one REP Helper is best set up to help you protect.

• Connect your booking calendars. REP Helper pulls your reservations from Airbnb, Vrbo, and direct bookings into one stay ledger through iCal sync, so every night and every reservation lives in one place.
• Watch the seven night line on its own. REP Helper computes your average stay for each property, each tax year, as total rental nights divided by the number of separate reservations, and keeps it current as bookings change. Instead of finding out at tax time that a few long stays dragged your average over seven nights and quietly disqualified the whole strategy, you see the number move while you can still adjust your booking mix.
• Track everyone's hours, not just yours. This is the part that actually beats a management company. REP Helper lets your cleaners, handymen, and property manager log their own hours against each property, right alongside yours. That gives you the one comparison the material participation tests turn on: your hours versus the whole team's hours. If the manager logged 120 hours and you logged 60, you can see in June that you fail the more than anyone else test, not in an audit, and either step up your own work or rethink the position. I dig into whose hours actually count in a separate piece.

For a high income owner with a short stay property, this is very often the realistic way to deduct losses, and it is the path Foradis left on the table.

Let me be clear about what software can and cannot do. REP Helper would not have saved this case if the hours were not real. No app makes an implausible claim believable, and nothing here replaces a CPA or a tax attorney. The court's problem was that 2,500 construction hours stacked on top of a 2,000 hour job did not add up, and no tool changes that arithmetic. But if the work genuinely happened the way he described it, this is where REP Helper would have changed his position.

Start with the heart of the case. The court did not throw out a number because the math was wrong. It threw out the number because the story behind it was hard to believe. One line that reads 2,500 hours invites a judge to ask how. A dated log that shows a Tuesday evening framing a wall, a Saturday on drywall, a Thursday call to the permit office, each with a few hours attached, answers that question before it is asked. REP Helper captures time that way, in the moment, through a timer or a quick voice note, so the year is documented as it happens instead of pieced together after an IRS notice arrives.

It would also have told him the truth early. The 50% test was his real problem, and it is the one most people never see coming, because they never track the other side of the ledger. REP Helper tracks his real estate hours and his roughly 2,000 hours of W2 work side by side, so by spring he could have seen whether he was genuinely ahead of his job or quietly behind. It also keeps each spouse's hours separate, which matters because on a joint return one spouse has to clear the 50% test on their own, and a working spouse's hours cannot be borrowed to rescue the other. If the numbers had looked thin in March, he could have changed course or walked away from the position. Instead he learned all of it in court.

It would also have given him corroboration, which is exactly what his own testimony lacked. If the work was real, here is what REP Helper would have put in his file, the pieces that would have done the most for a Real Estate Professional claim like his:

• A live 50% test tracker: your real estate hours and your W2 or business hours side by side, so you know by spring whether you are ahead of the more than half line or quietly behind.
• In the moment time capture: a one tap timer and quick voice notes, so an evening of framing or a call to the permit office is logged the day it happens, not rebuilt from memory a year later.
• Evidence attached to each activity: photos of the work, receipts tied to the day they were spent, and permit or inspection emails pulled in automatically from Gmail, each one sitting on the exact entry it backs up.
• A calendar view of the whole year: every week of real estate work laid against your job hours, so an unrealistic stretch is obvious to you long before it is obvious to a judge.
• Spouse level tracking: each spouse's hours kept separate, because only one spouse has to satisfy the tests and a working spouse cannot lend hours to the other.
• Reports you can hand to your CPA: a clean summary to review in March, June, and September, while there is still time to change the plan.

The clearest takeaway from the commentary on Foradis was blunt: your own say so is not enough, you need corroboration. REP Helper is set up to produce exactly that.

• Capture work as it happens. Timer based logging and voice entry let you record a task in the moment, two hours installing subfloor in the carriage house, fasteners bought today, which is much harder to wave away than a round number written down in April.
• Attach the evidence to the activity, not a shoebox. Photos, receipts, vendor invoices, inspection notices, and emails, including auto import from Gmail, attach directly to the dated entry they support. A receipt stops being just a purchase and becomes proof of work on that day.
• Separate owner work from everyone else's. Because service providers log their own time, your record shows who did what, which is the exact line a court wants drawn between your hours and a contractor's.
• See the story before the IRS does. A calendar view and simple analytics surface weekly patterns, thin evidence months, and entries you logged weeks late, so an implausible schedule shows up to you long before it shows up in an audit.

The thread running through all of this is timing. Foradis found out his claim was weak after he filed a return the IRS then challenged. With REP Helper's reports, you can sit down with your CPA or tax attorney in March, June, and September and ask the questions that actually decide the case, while you can still change the answer:

• Is my average stay safely under seven nights, or do I need to manage the booking mix?
• On the short term rental path, am I out working my management company?
• On the professional path, is my 50% margin real, and is it the right spouse's margin?
• Is my evidence solid, or am I logging hours weeks after the fact?

That conversation is worth far more in July than it is in audit defense.

• The 750 hour test is not the whole test. For anyone with a real job, the 50% test is usually the harder hurdle, and it is what Foradis lost on.
• Check the easy doors first. The $25,000 active participation allowance disappears above $150,000 of income, so know whether it is even available before you reach for the professional tests.
• Ask whether you need REPS at all. A short term rental that averages seven nights or fewer may only require material participation, a much lower bar, but only if you can prove the average stay and out work your team.
• Track non real estate and team hours, not just your own. You cannot win the 50% test or the material participation tests without the other side of the comparison.
• A big number needs a believable story. The higher the claim, the more the weekly pattern, the in the moment logging, and the supporting evidence matter.
• Understand spouse hours. One spouse has to satisfy the professional tests individually. A working spouse cannot rescue the 50% test.
• Stress test during the year. The best time to learn that a position is weak is while you can still fix it.

Foradis did not lose because he failed to say the magic words. He lost because the court did not find his time credible enough to clear the 50% test, and because, on a short term rental, he may have been fighting a battle he never needed to fight.

If the work really happened, it should be logged with discipline, tied to evidence, kept separate from your team's time, and measured against both the 50% test and the seven night line all year long. That is the kind of clarity REP Helper is meant to give you. It will not guarantee a tax result and it will not replace your CPA or tax attorney, but it lets you see the whole picture before the IRS, or a judge, sees it first.