A couple of weeks ago, I touched on qualifying as a real estate professional and I talked about the 750 hour test. Rule two is that the 750 hour test has to apply to activities in which the person materially participates. The catch here is you have to look at each activity individually (sort of, I’ll get to the exception in a minute).
In order to materially participate, you have to meet one of the following requirements:
1) The taxpayer spends 500 hours on the property.
2) The taxpayer does most of the work.
3) The taxpayer works more then 100 hours and nobody else works more hours then he does (this is the one most people shoot for).
4) The taxpayer has several activities and spend in which he spends 100-500 hours each and the total time spend is 500 hours.
5) The taxpayer materially participated in an activity for five of the last ten years.
Where you run into the most problems is when you have multiple properties. Fortunately the IRS lets you make an election to group all of your properties together as one activity. You have to make a formal election on your tax return though and if you’ve never done this and have put yourself out as a real estate professional, you do have some risk. The election isn’t all that complicated, but if you’d like a free template, feel free to send me an email or a Facebook message.