let me give you an example of the rules where a REP does not elect to treat all rental real estate activities as one activity.
Jane owns two rental real estate interests. Properties 1 and 2. She did not elect to treat both as one activity.
Properties 1 and 2 are treated as separate rental real estate activities for the material participation tests, if she meets one of the material participation tests for Property 1, but not Property 2, Property 1 will be nonpassive but Property 2 will be passive.
the tests
- Test one: You participated for more than 500 hours.
- Test two: Your activity substantially constituted all participation.
- Test three: You participated for more than 100 hours and no less than any other individual.
- Test four: The activity is a significant participation activity, and you participated in it along with all significant participation activities, for more than 500 hours. A significant participation activity is a business in which the taxpayer participates, without qualifying for any of the other six tests, for more than 100 hours.
- Test five: You participated during any five of the preceding 10 taxable years.
- Test six: The activity is a personal service activity and you participated for any three prior taxable years. Personal service activities are activities in which capital is not a material income-producing factor, such as health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting.
- Test seven: You participated for more than 100 hours and (based on all the facts and circumstances) on a regular, continuous, and substantial basis.
so what type of participation was checked for the VR?
electing to treat all rentals as one requires a formal election to be attached to the return (the return would need to be mailed since Turbotax does not have this election). the election is generally irrevocable. Any new properties would need to be included.
