Material Participation For Real Estate Investors Clarified

This post is in: Real Estate
No Comments

poiuytrewsdfLast year, the IRS released Rev. Proc. 2011-34 and the real estate investor community is still reeling from some of the changes with this and other new rules for 2012.  One thing that has been clarified is what material participation for real estate investor property is:

Remember if you make less than $100K per year, you have to meet the active participation rules. It’s a lesser standard than material participation.

In order to have material participation, you must have one of the following for each property:

The taxpayer participates in the activity more than500 hours during the year.

Thetaxpayer’s participation in the activity duringthe year constitutes substantially all theparticipation in such activity by all individualsfor such year.

The taxpayer participates in the activity morethan 100 hours during the relevant year, and hisparticipation is not less than that of any otherindividual for such year.

The activity is a “significant participation activity”during the year, and the taxpayer’s aggregate participation in all significant participation activitiesduring such year exceeds 500 hours.

The taxpayer materially participated in the activity for any five tax years (consecutive or not)during the 10 years immediately preceding theyear at issue.

The activity is a “personal service activity,” andthe taxpayer materially participated in such activityfor any three years (consecutive or not) beforethe year at issue.

Based on all of the facts and circumstances, takinginto account the special rules found elsewhere inthe regulations, the taxpayer participates in theactivity on a regular, continuous and substantialbasis during such year.

Please make sure you read the previous blog entry for additional information on the aggregation election if you have more than one property and can’t meet the individual material participation rules.

Also, a reminder:  The special price of just $299 for the Real Estate Accountant in the Box expires at 5 pm Pacific on Friday.  After that, the price will go to $497.  Act now at

Leave a Comment