Dictionary of Real Estate Terms: active participation
active participation
type of investor position that determines how rental income is taxed. Requirements for active participation are less stringent than for material participation. An investor may have a manager for rental real estate and still be considered an active participant. Indicators of active participation in real estate are:
- Approving new tenants
- Deciding on rental terms
- Approving capital or repair expenditures
Example: Anna earns $40,000 from her job as an attorney, and is an active investor in an apartment complex. If the apartments generate a tax loss, she may offset up to $25,000 of her salary with the loss.
