Material Participation in Rental Real Estate

[Michelle Au]

Under Sec 469:

• A taxpayer qualifies as a real estate professional if (1) more than one-half of the personal services the taxpayer performs in trades or businesses during the tax year are in real property trades or businesses in which the taxpayer materially participates, and (2) hours spent providing personal services in real property trades or businesses in which the taxpayer materially participates total more than 750 during the tax year.

• A rental activity of a taxpayer that qualifies as a real estate professional under Sec. 469(c)(7) is not presumed to be passive and will be treated as nonpassive if the taxpayer materially participates in the activity.

If someone qualifies as a real estate professional, he/she can deduct I believe up to $25,000 of rental losses per year against ordinary income. So, does that mean that rental income will be classified as ordinary income too (vs investment income which is taxed at a lower rate)?

Thank you!