[wjun15]

On one of the Becker problems. It says that an individual has a $35,000 passive loss from a real estate rental activity that he materially participated.

Is this still considered passive activity? In Becker chapter 1 it says “a passive activity is any activity in which the taxpayer does not materially participate”

Wouldn’t that mean that in this case it isn’t a passive activity since he materiality participates?

[subie_rex]

I believe the general rule of thumb is that rental activity is considered passive regardless of ‘material participation” This is likey a classic trick Becker question. There are exceptions however, for example the ‘mom and pop' rental management exception where you can deduct up to 25k of retal losses against ordinary income but it does get phased out. The other is the real estate professional. If you work I think at least 700 hours or something in a given tax year then your rental income is not passive but rather ordinary.

BEC-86 (07/07/12)
FAR-87(08/25/12)
AUD-93(10/08/12)
REG-87(11/17/12)

[Anonymous]

Real estate activities are always passive unless that is the business u r in. However if u materially participate you can write off up to 25k against your ordinary income per year even thou gh it's considered passive. Subject to phaseout.

[leglock]

If you materially pariticipate it is not a passive activity. To qualify for the mom and pop exception, you must ACTIVELY participate (and then you can write off up to 25k) which is a different than MATERIALLY participating. My taxation book clearly distinguished between ACTIVELY participating and MATERIALLY participating.

[Author]

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