You are attempting to accomplish something that you are not able to accomplish.
You need to keep in mind that the passive activity regulations apply to many different trades or businesses, one of which is real estate.
The material participation rules you cite are the general rules.
Additionally, the regulation you included is an exception for tangible property rentals.
Rental activities are passive regardless of participation, except if you qualify as a real estate professional; which is a separate standard that needs to be addressed.
IRC Section 469(c)(4) essentially states that Section 469(c)(2) applies regardless of whether or not the taxpayer materially participates. The only exception is the Section 469(c)(7); professional real estate.
Having said that, there is the $25,000 rental loss allowance, but that is phased out depending on a taxpayers income level.
You may be cutting and pasting material from a seminar that is overly aggressive; there are many out there.
To quote a noted tax commentator.......after reading every single real estate professional case, he states he is confident that no one understands the tax law.....not taxpayers, not tax advisors, not the IRS and not even the Tax Court.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
