Updated · Part of the CRE investment glossary
What Rule 501(a) says
Rule 501(a) of Regulation D lists the categories of accredited investor. A buyer is accredited if they fall within a category, or if the issuer reasonably believes they do, at the time of the sale. Status is tested at each sale, not once for life.
The definition matters because Rule 506 is built around it. Rule 506(b) allows unlimited accredited investors plus up to 35 non-accredited investors who are financially sophisticated. Rule 506(c) allows general solicitation, but every purchaser must be accredited and the issuer must take reasonable steps to verify it.
Tests for individuals
A natural person qualifies by meeting any one of these:
- Income, Rule 501(a)(6): more than $200,000 in each of the two most recent years, or more than $300,000 jointly with a spouse or spousal equivalent, with a reasonable expectation of the same level this year.
- Net worth, Rule 501(a)(5): more than $1,000,000, alone or jointly with a spouse or spousal equivalent. The primary residence is not counted as an asset. Mortgage debt on it is not a liability up to the home’s value, but debt above that value counts, and so does any increase in the 60 days before the sale other than to buy the home.
- Professional credentials, Rule 501(a)(10): holders in good standing of the Series 7, Series 65 or Series 82 license.
- Insiders, Rule 501(a)(4): directors, executive officers and general partners of the issuer, or of the issuer’s general partner.
- Knowledgeable employees, Rule 501(a)(11): for an issuer that is a private fund relying on Section 3(c)(1) or 3(c)(7) of the Investment Company Act.
Worked example: four individual investors
The tests are pass or fail, and one is enough. In October 2026 the two most recent years are 2024 and 2025. For net worth, take total net worth and remove the equity in the primary residence.
| Investor | Facts | Arithmetic | Accredited? |
|---|---|---|---|
| A, single | Income $210,000 (2024), $230,000 (2025), similar expected | Both years above $200,000 | Yes, income test |
| B and C, married | Incomes $180,000 + $140,000 in each year | $320,000 joint, above $300,000 | Yes, jointly |
| D | Net worth $1,400,000, including $250,000 of home equity | $1,400,000 − $250,000 = $1,150,000 | Yes, net worth test |
| E | Net worth $1,100,000, including $300,000 of home equity; income $150,000 | $1,100,000 − $300,000 = $800,000 | No, unless another test fits |
Tests for entities
Entities qualify on their size, their type or their owners. The categories that come up in real estate raises:
- Corporations, partnerships, LLCs, business trusts and 501(c)(3) organizations with more than $5,000,000 in total assets, not formed to buy this investment (Rule 501(a)(3)).
- Trusts with more than $5,000,000 in total assets, not formed for the purpose, whose purchase is directed by a sophisticated person (Rule 501(a)(7)).
- Any entity in which all equity owners are accredited (Rule 501(a)(8)). The rule allows looking through layers of ownership to the natural persons.
- Entities of a type not listed elsewhere that own more than $5,000,000 in investments and were not formed for the purpose (Rule 501(a)(9)).
- Family offices with more than $5,000,000 under management, and their family clients (Rule 501(a)(12) and (13)).
- Banks, registered broker-dealers, registered and exempt reporting investment advisers, insurance companies and certain benefit plans (Rule 501(a)(1)).
What the 2020 amendments added
The SEC amended the definition in August 2020, effective December 8, 2020. Before then, an individual qualified almost only on income or wealth. The amendments added:
- Professional credentials as a category, with the Series 7, 65 and 82 licenses designated by SEC order. The SEC can designate more credentials by order after public comment.
- Knowledgeable employees of private funds, for investments in that fund.
- The spousal equivalent, defined in Rule 501(j) as a cohabitant in a relationship generally equivalent to that of a spouse, for the joint income and joint net worth tests.
- LLCs named in the $5,000,000 asset test, and SEC- and state-registered advisers, exempt reporting advisers and rural business investment companies as institutional categories.
- The $5,000,000 investments test for other entity types, and family offices with their family clients.
What to watch for
Most problems are about timing and records, not the thresholds:
- Status applies at the time of each sale. A questionnaire from a deal two years ago does not show status today.
- Test the actual purchaser. For a trust, an LLC or an IRA, the investing entity buys, and which test applies depends on its type. Ask counsel how each structure qualifies.
- The dollar thresholds are not indexed to inflation, and proposals to change the definition come up regularly. Check the current rule before each offering.
- A self-certified questionnaire can support a reasonable belief under Rule 506(b). Under Rule 506(c) a checked box is not enough; the verification methods are in our separate guide.
- Accredited investor is not the same as qualified purchaser or qualified client. Those are separate tests under other federal statutes, with higher thresholds.
Primary sources
General information, not legal, tax or investment advice. Your operating agreement, offering documents, counsel and CPA govern your deal.