500 hour rule - material participation

[David Woodside]

Is anyone familiar with the rule listed in the title and is anyone that has a full-time job in another industry using this rule? The first two CPAs I reached out to advised against this. Looking for someone who is successfully doing this in the state of Maryland?

Thanks

[Ben Trageser]

It is really hard to make the case that if you have a full time job, you would fall under the 500 hour rule. I would tend to agree with the other CPAs typically.

The 500-hour test is one of seven material participation tests used by the IRS to determine if a taxpayer is actively involved in a trade, business, or rental activity. The participation must be regular, continuous, and substantial as defined by the IRS. Time spent as an investor or in activities not customarily done by an owner does not count towards the 500 hours.

One thing to note is that if you are married, you can combine hours with your spouse's to meet this threshold. You would essentially be working 50-60 hour weeks when combining with your full-time job and the real estate to qualify.

If you have a detailed and accurate hours log, it is possible but just note that it may raise scrutiny by the IRS.

*This post does not create a client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice