Active Participation? / Residential Real Estate Rental

[bbrownatl]

I have a client with a Sch. E loss but I hesitant to indicate active participation and thus use the loss. They are clear across the country and have a management company handling matters. Even if they are the final signoff on tenants and repairs, is that really active participation. I want to use those losses but then again I don't want to set them up for them being disallowed via an audit. Any thoughts or experiences?

Per TTB, Active participation standards are met if the taxpayer (or taxpayer's spouse) participates in management of the rental property in a significant and bona fide sense. For example, management decisions such as approving new tenants, deciding on rental terms, approving expenditures, and similar decisions meet active participation standards."

[BHoffman]

I have a client with a Sch. E loss but I hesitant to indicate active participation and thus use the loss. They are clear across the country and have a management company handling matters. Even if they are the final signoff on tenants and repairs, is that really active participation. I want to use those losses but then again I don't want to set them up for them being disallowed via an audit. Any thoughts or experiences?

Per TTB, Active participation standards are met if the taxpayer (or taxpayer's spouse) participates in management of the rental property in a significant and bona fide sense. For example, management decisions such as approving new tenants, deciding on rental terms, approving expenditures, and similar decisions meet active participation standards."

Sounds like they are active participants due to the final signoff. My experience is that IRS will allow the $25k special allowance unless the taxpayer is in a coma.

[AZ-Tax]

IRS examine on this area

I just got done helping a client with an IRS examine for the tax preparer that originally completed this tax return gave the client "real estate professional" status with $63,000 Sch E loss. Impossible since both TP and Spouse had W-2 wage for which neither was related to real estate. IRS almost allowed it but at the end disallowed it but had no problem with the active participation and allowed $25K loss.

[Gary]

Agi

The allowed loss depends upon the AGI. I have a client that makes too much money and gets no loss. Of course, it carries over, but until he sells the property, he will never be able to claim the loss.

[AZ-Tax]

Gary is correct

You are correct, now that I think about it, only $18500 Sch E loss was allowed. I have another client that continues to get no Sch E loss because of high AGI.