On Apr 13, 10:56 pm, "D. Stussy" <s...[at]bde-arc.ampr.org> wrote:
- quote -

I see nothing in the 500 hour test that indicates this is used when
multiple people have an interest. Is this explained somewhere you can
point me to?

- quote -

The wording of test 3 doesn't imply to me that everyone together must
work more than 500 hours.

I used this article to get a description of the tests:
http://www.irs.gov/businesses/small/...146335,00.html .
Maybe you can point me to a better description of how these tests get
applied in practice, if you know of one.

Also, the IRS is apparently fighting to prevent RE agents from being
considered real estate professionals. The hangup appears to be that
the description of a real estate professional includes "brokering"
deals, and if you don't have a broker's license (instead of just an
agent's license) , you therefore don't qualify. My wife has a broker's
license, so hopefully we will be ok. This link has more info:

http://www.taxloopholes.com/connect/...essional-looph

Be interesting to see how the tax court rules.

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<way111[at]gmail.com> wrote in message
news:6855a89c-f58d-4a97-9a05-6811c7227ac0[at]x41g2000hsb.googlegroups.com...
- quote -

Under the original PAL statutes, no. However, a few years ago, there were
special rules for professional RE people added. It's in parallel to the 500
hour rule - which itself is used when MULTIPLE people have an interest in
the activity or its operations.

- quote -

Separately.

- quote -

Yes. There is NO ONE ELSE doing the work.

- quote -

Doesn't matter. The 100 hour rule is applied when no one person meets the
500 hour rule but everyone together does.

- quote -

No. If you MP'ed in years 1-5 only, you get a pass in years 6-10 only.

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

For some reason, determining "material participation" leaves me with
many questions. Hopefully, I can get some opinions to help me. It
never used to matter because my income was low enough that I could
deduct my losses under the passive loss rules. Now however I am
hitting the limitation.

I'll try to be as brief as possible and make my questions yes/no type
questions to make it easy on anyone who wants to respond.

Facts:

a) My wife is a full time real estate professional doing sales and
rentals of mostly residential RE, a little commercial as well

b) We own 4 multi-family buildings, which she manages - finding
tenants, advertising, handling the money, bookkeeping, dealing with
repair people, etc. Hard to say how much time she spends - when we
have no vacancies or problems, it is probably 5-10 hours/month or so
combined for all properties.

c) We purchased a building in 2007 that needed substantial repair,
much of which we did ourselves (probably 150-200 hours for myself, 50
hours for my wife, 100 hours for my 16 year old). We hired various
people to do plumbing and more complicated carpentry, however none
worked more than the 150 hours I put in.

d) We generally find our own tenants, however we will occasionally
accept a tenant found by an agency and pay them a commission, however
we make to decision to take them based on our own income/credit/
reference standards. We make all decisions on rents, repairs,
improvements, etc.


Questions:

1) Does the fact that my wife is a full time RE professional
automatically make all of our rentals meet test 1 "The taxpayer works
500 hours or more during the year in the activity."? It's not clear
what "activity" covers in this context.

2) Do I have to "group" all the rentals or do I figure out material
participation for each one separately? Or can I choose?

3) Test 2 says "The taxpayer does substantially all the work in the
activity." Tthis is true for all of our rentals, since no one does
more more work than my wife and I. However, "substantial" is not
defined and there are no specific hour requirements. Do I meet this
test?

4) Test 3 says "The taxpayer works more than 100 hours in the activity
during the year and no one else works more than the taxpayer." We
certainly meet this for our latest property since my time gets
included in the 100 hours, and no one else worked more. So for at
least the latest property, we pass the test. Agree?

5) Test 7 seems to be a more restrictive version of test 3. If you
meet test 3, wouldn't you automatically meet test 7?

6) Test 5 states "The taxpayer materially participated in the activity
in any 5 of the prior 10 years." Does this have the effect that if you
materially participate for 5 years in a row, you will pass this test
forever? It would seem in year 6 you pass, in year 7 you pass because
of years 2-5 and the passing of test 5 in year 6, etc.

Thanks!

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >