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Rental Property Rules – What Is Material Participation?

Rental PropertyA client is generally considered to have materially participated in an activity if he or she passes any of the following seven tests:

  1. The client spent more than 500 hours on the activity during the tax year.
  2. The client’s participation constituted substantially all of the participation by anyone in the activity for the year.
  3. The client spent more than 100 hours on the activity during the year, and no one else spent more time.
  4. The client spent more than 500 hours on the activity in any five of the ten preceding years.
  5. The taxpayer spent more than 500 hours on two or more activities during the year and more than 100 hours on each of those activities.
  6. The activity is a personal service activity and the client participated in the activity for more than 500 hours in any three preceding years.
  7. All the facts and circumstances show that client materially participated in the activity for the year. [Reg. Sec. 1.469-5T(a)].

TOUGH RULE FOR LIMITED PARTNERS: A limited partner is treated as materially participating in a partnership activity only if he or she passes tests 1,4, or 6. As a practical matter, only the first and fourth tests are relevant to rental real estate because it’s not a personal service activity.


If you have any questions or require further info please call 718-531-1105 or send an email.


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Contact Info:

Ronald Semaria
Semaria Consulting
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Email: info@semaria.com

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