What is active participation in a rental property?

Active participation is a lower standard of involvement than material participation and is more commonly used among individuals. This level of participation allows a special passive loss rule for rental activities. You must own at least 10% of the rental and have substantial involvement in managing the rental.

Is rental real estate with active participation subject to net investment income tax?

The gain from the sale of rental property is also subject to NIIT unless the rental activity is part of an active trade or business. If the real estate activity is considered a passive activity, any gain on the sale of property would generate gain that would be subject to the net investment income tax.

What makes a taxpayer an active participant in real estate?

Active Participation A taxpayer is considered to actively participated in a rental real estate activity if the taxpayer, and the taxpayer’s spouse if filing joint, owned at least 10% of the rental property and you made management decisions in a significant and bona fide sense.

What are the rules for active participation of rental property owners?

In addition to owning at least 10 percent of the rental property to meet the active participation test, you must have actively participated in the property’s management, specifically in management decisions.

What makes a rental property an active investment?

Determining your level of involvement is key to the tax treatment of the income/losses that the real estate generates. Real estate, by definition, is a passive investment, but depending on your level of participation you may be able to treat the rental as active or be classified as a “real estate professional” for tax purposes.

What are the three levels of participation in real estate?

The three levels of participation are Active, Material, and Real Estate Professional. A taxpayer is considered to actively participated in a rental real estate activity if the taxpayer, and the taxpayer’s spouse if filing joint, owned at least 10% of the rental property and you made management decisions in a significant and bona fide sense.