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Rental Activities are passive by nature.
There are three levels of Participation. For Active Participants, real estate activities are still passive activities. For Material Participants and Real Estate Professionals, Real estate is not a passive activity.
Active Participation
Taxpayers are considered to have actively participated in a rental real estate activity if the taxpayer owned at least 10% of the rental property and you made management decisions. Management decisions generally include approving new tenants, deciding on rental terms, approving expenditures etc. .
Material Participation
A business activity is not passive if you materially participated in the activity. Material Participation means that the taxpayer is involved in the activity on a basis that is "regular, continuous, and substantial". The IRS has a series of test to indicate if you materially participated or not:
Real Estate Professional
Activities of real estate professionals are not treated as passive activities. The taxpayer qualifies as a real estate professional if both of the following conditions are met:
KarenM90
I believe your explanation has helped me to clarify my position in handling our three rental properties. I do all the maintenance, search for new tenants and handle their concerns year round. In the past I thought I could only be an active participant but now, if I understand your explanation correctly I can say I materially participate as well. BTW: I am not a real estate agent. Caring for my husband and my three properties is my full time work.
Thank you.
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