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Financial Planning / Tax Strategies


Subject:  Re: Rental property income Date:  3/15/2001  5:39 PM
Author:  BostonCPA Number:  48486 of 127753

In dealing with rental real estate, we have to keep in mind the difference between "material participation" and "active participation". A material participation real estate professional (MPREP)is someone who is in the business of renting real estate. Material participation requires regular, continuous and substantial involvement in the operations of renting real estate.

The guidelines for "active participation" are not as strict as those for a MPREP. As long as an individual owns at least 10% of the activity at all times throughout the year and does not own the activity as a limited partner, and the individual participates actively, such as making management decisions or even arranging for others to perform services for the rental property, than the individual is considered an active participant in the activity.

What does all this mean? An active participant may deduct up to $25,000 in rental activity losses against non-passive income. However, the deduction is phased out when modified adjusted gross income is between $100,000 and $150,000. It is phased out completely when modified AGI is over $150,000.

It would appear to me that << gogolfer >> is an active participant, and should be able to deduct up to $25,000 of his rental loss subject to the AGI limitations. If he has proof that he activiely participated and was the decision-maker, he shouldn't worry about an audit. I agree with the other posters that he should not show phantom rental income to take the loss. It is not correct and not necessary either.

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