Today TaxMama hears from Gene in California who tells us, “My wife and I are landlords. We own 8 single family homes as rentals, 7 of them out of state. We both have full time jobs, but manage rentals ourselves without rental management companies.
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Do we qualify for the status of active participants not passive participants?
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”
Dear Gene,
IRS Publication 925 contains the guidelines for active participation.
https://www.irs.gov/publications/p925/index.html
- Active participation. Active participation is not the same as material participation (defined later). Active participation is a less stringent standard than material participation.
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For example, you may be treated as actively participating if you make management decisions in a significant and bona fide sense.
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Management decisions that count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions.
You probably qualify as active participants if you make all the decisions.
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What you’re probably looking for are the rules on ‘material participation’, which define the number of hours you need to spend managing your property. You’ll find those rules in Chapter Two, here:
https://www.irs.gov/publications/p925/ar02.html#d0e744
There are just sooooo many rules, that even auditors have a hard time figuring them all out.
I hope this helps.
And remember, you can find answers to all kinds of questions about real estate and other tax issues, free. Where? Where else? At TaxMama.com
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- IRS Publication 925 :: Passive Activity and At-Risk Rules
- IRS Publication 925, Chapter 2 :: Material Participation
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