topic If we have a property manager for a rental property and they wrote up an agreement for us but we ultimately signed off on it are we considered active participants? in Investors & landlords

If we have a property manager for a rental property and they wrote up an agreement for us but we ultimately signed off on it are we considered active participants?

torithompson22 — Thu, 06 Jun 2019 05:20:17 GMT

Active participation. You actively participated in a re...

view2 — Thu, 06 Jun 2019 05:20:19 GMT

Active participation. You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions.

https://www.irs.gov/publications/p527/ch03.html#en_US_2015_publink1000219127l

Even if you use a management company, you will be considered active if you are involved with the operation of your rental.The term "active participation" is a less stringent standard than "material participation."

You must be exercising independent judgment and not simply ratifying decisions made by a manager or management company.To actively participate you do not have to handle every aspect of management. If you approve new tenants, determine rental terms and approve expenditures, you have met the test.

As long as you participates in management decisions in a bona fide sense, you actively participated in the real estate rental activity. Activities include new tenant approval, rental terms, repairs, capital expenditures, etc.

I use a property management company as well. I was sent p...

heatherizzy — Thu, 06 Jun 2019 05:20:21 GMT

I use a property management company as well. I was sent potential tenants credit reports, etc. and ultimately decided on the tenant even though the management company handled all of the paperwork details. I always approved every expenditure, but the management company handled ordering the repair work with their approved vendors they've been working with for years - which I ultimately give the OK or I could choose my own repair person. If I used there's, the management co charged me a fee. I own 100% of the property. I received all of the complaint notices regarding tenants from my HOA and actively dealt with that. Do I qualify for active participation?

@heatherizzy ..You must be exercising independent judgmen...

view2 — Thu, 06 Jun 2019 05:20:22 GMT

@heatherizzy ..You must be exercising independent judgment and not simply ratifying decisions made by a manager or management company.To actively participate you do not have to handle every aspect of management. If you approve new tenants, determine rental terms and approve expenditures..Then Yes

Re: If we have a property manager for a rental property and they wrote up an agreement for us but we ultimately signed off on it are we considered active participants?

parkervasil — Tue, 07 Jul 2020 19:44:42 GMT

I tend to disagree with the other replies to this question. IRS pub 925 (2019) says "A rental activity is a passive activity even if you materially participated in that activity, unless you materially participated as a real estate professional." (p. 3, Passive Activity and At-Risk Rules) [emphasis added].

NB: I am not a tax professional and came to the community seeking support for my belief that the EasyGuide in TurboTax wasn't giving the correct answer because it doesn't seem to take the above quote into account.

Re: If we have a property manager for a rental property and they wrote up an agreement for us but we ultimately signed off on it are we considered active participants?

Chuck127 — Mon, 21 Dec 2020 08:31:02 GMT

@parkervasil You are right about passive activity, but it isn't what was discussed here. Active participation and active activity are two different things for tax purposes. Lots of landlords are active participants, but only real estate professionals qualify for active activity