You qualify as an accredited investor if you pass an income test or a net worth test set by the SEC, or hold certain professional licenses it designates.

The definition lives in Rule 501 of Regulation D. It matters because many private offerings, including real estate funds and syndications, may only be sold to accredited investors.

What is the income test?

An individual qualifies with income above $200,000 in each of the two most recent years, or joint income with a spouse or spousal equivalent above $300,000 in each of those years. In both cases, the person must also have a reasonable expectation of reaching the same income level in the current year.

What is the net worth test?

An individual qualifies with a net worth above $1,000,000, alone or together with a spouse or spousal equivalent. The person's primary residence is not counted as an asset, and the rules also set how the mortgage on that home is treated in the calculation.

Can a professional license make you accredited?

Yes. The SEC designates certain professional certifications and licenses that qualify the holder regardless of income or net worth. Some people connected to the issuer, such as its directors and executive officers, are also included in the definition.

Can a company or trust be an accredited investor?

Yes. Rule 501 also lists entities, such as certain banks, investment advisers, employee benefit plans and trusts, and companies that meet asset tests. Each category has its own conditions in the rule.

How do you prove you are an accredited investor?

It depends on the offering. Under Rule 506(c), which allows public advertising, the sponsor must take reasonable steps to verify your status, for example by reviewing tax returns, bank statements or a letter from your accountant, attorney or financial adviser. Under Rule 506(b), investors may self-certify, but the sponsor cannot advertise the offering publicly.

Sources

  • U.S. Securities and Exchange Commission (SEC): Rule 501 of Regulation D, 17 CFR 230.501, definition of accredited investor
  • U.S. Securities and Exchange Commission (SEC): Investor.gov glossary, accredited investors

Educational Notice

This article is for educational and informational purposes only and does not constitute financial, legal or tax advice.

Educational content. Not an offer, an investment recommendation or legal or tax advice.