Active Participation

Type of investor position that determines how rental income is taxed. Requirements for active participation are less stringent than for material participation. An investor may have a manager for rental real estate and still be considered an active participant.
Indicators of active participation in real estate are:

• Approving new tenants

• Deciding on rental terms

• Approving capital or repair expenditures Active participation excludes:

• Owners of a 10% interest or less

• Limited partners An active participant with adjusted gross income under $100,000 without regard to passive losses, may deduct up to $25,000 of passive losses against other income. This allowance is phased out on a 50% ratio as adjusted gross income increases from $100,000 to $150,000.


Example: Anna earns $40,000 from her job as an attorney, and is an active investor in an apartment complex. If the apartments generate a tax loss, she may offset up to $25,000 of her salary with the loss.

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