Rental activities are considered passive activities by definition, however activities of real estate professionals are not treated as passive activities. They are treated as non-passive. The taxpayer qualifies as a real estate professional if both of the following conditions are met:
- More than half of the personal services the taxpayer performed in all trades or businesses during the year were performed in real property trades or businesses in which the taxpayer materially participated, and
- The taxpayer performed more than 750 hours of services during the tax year in real property trades or businesses in which the taxpayer materially participated.
To designate the taxpayer as a real estate professional, from the main menu of the tax return (Form 1040) select:
- Income
- Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
- Rents and Royalties - Select the property from the list
- Select Supplemental Income Questions
- Disposed of Property or Eligible Real Estate Professional - Change to Yes
Additional Information:
Publication 527, Residential Rental Property
Publication 925 - Passive Activity & At-Risk Rules
Instructions for Form 8582 - Passive Activity Loss Limitations
