Am I considered an 'Active Participator'?

Question

This may be the worst place to ask this. I hope there are willing professionals available. I have rental property in Michigan, I live in San Diego. I have a property manager renting the property. However, she has called me for approval on every repair, and asked me to offer approval tenants for lease agreements. She also asked me to set terms for rental for those things legally flexible, but she wrote the contract using her templates. I owe 100% of the property. Am I considered 'Active participator' for the purposes of writing off the $2265 in losses I have on this property, or must I only use this against other passive activity?

Answer 1

According to IRS Publication 925, Rental Active Participation is not the same as Material Participation. It is a less stringent standard. You may be treated as Actively Participating if yo make management decisions in a significant and bona fide sense. These include approving new tenants, deciding on rental terms, approving expenditures, and similar decisions.

If you walked into my tax office and said that you set terms for rent and are phoned to approve every repair, I would not hesitate for one second to say you are an Active Participator. The ones that need to worry are the "set it and forget it" type that use a property manager that decides everything and don't know what is going on with their property until they get a report at the end of the year.

Answer 2

I may be wrong, but I seem to remember a case last summer where a rental loss was disallowed and the deciding factor for the IRS was the fact that the owner had a property manager running the day-to-day operations.

Answer 3

Yes, if you are the one making the decisions on the property, you can claim active participation. However, active participation may not necessarily be enough in order to be able to deduct a loss. Rental properties, by it's nature, is considered passive activities.