Discussion:Active Participation Standard for Rental Real Estate
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Discussion Forum Index --> Tax Questions --> Active Participation Standard for Rental Real Estate
| 19 March 2008 | |
| I know this has been thrown around a few times, but I am curious as to a couple of situations. Under Section 469(i), a taxpayer is allowed a $25,000 loss under the "active participation" standard. Now, if a client hires a management company and the management company simply collects the rent and deposits it, finds tenants, yet owner approves tenants, owner approves repairs and hires contractors, pays all the other bills, would that, in your opinion meet the active participation standard?
The other one seems cut and dry as a military person is stationed overseas, but management company does all the work, so that appears they have a passive activity. The owner doesn't have any say right now as management company can't contact them. Thanks, Tom | |
TheTinCook (talk|edits) said: | 19 March 2008 |
| Check out James R. and Anita Madler v. Commissioner. T.C. Memo. 1998-112 for an interesting discussion on the issue.
Active participation revolves around making management decisions not on actual "work" performed on the activity, so I would say that your first set of clients get to use the $25,000 loss allowance if they otherwise qualify. For your military client, the case is weaker. The taxpayers involvement can be infrequent, i.e. monthly, and still qualify. | |
| 29 March 2008 | |
| Okay, I have to bring this back based on new information.
My military client finally gets back to me. They tell me they approve the tenants, pay the mortgage and approve the repairs. However, they don't hire the contractors, since they are overseas. After reading Madler, I am a little more convinced they are in the active participation category. Does anyone have a different take or does my research hold up? Thanks, Tom | |
| 29 March 2008 | |
| You should be good! The threshold for active participation is relatively low and should not be confused with material participation. | |
Death&Taxes (talk|edits) said: | 29 March 2008 |
| TRA 86 Blue Book: "The difference between active participation and material participation is that the former can be satisfied without regular continuous, and substantial involvement in operations, so long as the taxpayer participates, e.g., in the making of management decisions or arranging for others to provide services (such as repairs) in a significant and bona fide sense." | |
