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Updated almost 2 years ago, 03/14/2023

User Stats

1
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3
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Wayne Lester
3
Votes |
1
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Material participation tests activities

Wayne Lester
Posted

What activities qualify for the material participation tests for making your short term (<7 day on avg stay) active instead of passive income/loss? I'm taking the "I contributed 100 hours and nobody contributed more time" approach and logging everyone's hours who is contributing (mine, my spouse/business partner, my property manager and other contractors). Also, do my spouse/business partner and my hours count together or separate for the tests? I hear (from the internet) that things like travel to/from the property, preparing financial statements, preparing taxes, and general "investor activity" in my case wouldn't count but I wanted more opinions. Does online shopping for furnishings count, and how do I prove that one? What about interviewing cleaners? Time spent arguing with Home Depot about how my dryer still isn't here after 3 attempts of delivery without it even on the truck? Interior design conversations with my spouse/business partner, and how do I prove?

Background: My spouse and I bought it first investment property this year! I want to offset my W2 income this year with all the, hopefully, active losses from setting up, furnishing, and bonus depreciation in the first year. We are currently furnishing it and will be placing it on short term rental platforms like Airbnb and VRBO. It will be run as a less than 7 day in average stay. We will handle the bookings, communication with guests and contractors, pricing, etc. from where we are out of state (8hr drive). My mother-in-law is our in person property manager for if something goes wrong, emergency guest communication, receive packages and mail, etc.

Thanks in advance advice! I'll consider it not legal nor tax advice :)

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