Activities of Real Estate Professionals
If you were a real estate professional in the tax year, any rental real estate activity in which you materially participated is not a passive activity. You were a real estate professional only if you met both of the following conditions:
- More than half of the personal services you performed in trades or businesses were performed in real property trades or businesses in which you materially participated.
- You performed more than 750 hours of services in real property trades or businesses in which you materially participated.
For purposes of this rule, each interest in rental real estate is a separate acitivity, unless you elect to treat all your interests in rental real estate as one activity. To make this election, an attached statement will be added to your tax return that declares you are a qualifying taxpayer for the year and you are making the election under section 469(c)(7)(A). The election applies for the year made and all later years in which you are a real estate professional. You can revoke the election only if your facts and circumstances materially change.
If you are married filing jointly, either you or your spouse must meet both of the above conditions, without taking into account services performed by the other spouse.
For more information, see the Instructions for the Schedule E from the IRS Web site.