Material participation in this context means participation on a “regular, continuous and substantial” basis. Unless you're a limited partner,
you're deemed to materially participate in a business activity if you
meet just one of seven tests:
- You participate in the activity at least 500 hours during the year.
- Your participation constitutes substantially all of the participation for the year by anyone, including nonowners.
- You participate more than 100 hours and as much or more than any other person.
- The activity is a “significant participation activity” — that is,
you participate more than 100 hours — but you participate less than one
or more other people yet your participation in all of your significant
participation activities for the year totals more than 500 hours.
- You materially participated in the activity for any five of the preceding 10 tax years.
- The activity is a personal service activity in which you materially participated in any three previous tax years.
- Regardless of the number of hours, based on all the facts and
circumstances, you participate in the activity on a regular, continuous
and substantial basis.