Can I materially participate when I hire a property manager?

The direct answer

Hiring a manager does not automatically prevent material participation, but their work can matter under the applicable test. The more-than-100-hour test includes a comparison with every other individual. Different tests can produce different results, so record your substantive work and the manager's role.

A practical example

Illustrative example, not a client result: An owner supervises vendors while a manager handles daily guest communications. Compare the actual duties and hours rather than relying on job titles.

Test the activity before claiming the loss

First classify the activity for passive-loss purposes, then identify the specific qualification or participation test. A short average stay, a professional license and a cost segregation report answer different questions. Maintain reasonable records of actual work and reconcile them with other commitments. Basis, at-risk and excess business loss limits can still matter after passive treatment is resolved.

Put the answer into your own tax file

Start by identifying the taxpayer, the tax year and the actual transaction. Then connect the transaction to the original documents before choosing a return line or moving money between accounts. A payment description can be useful evidence, but it cannot replace the underlying facts.

The records to review for this topic are: Participation records, guest-use periods, property manager duties, other work calendars and prior elections.

For the example above, write down the decision that needs to be made, the missing information and the person responsible for supplying it. Keep the business, payroll, property and personal return teams aligned when more than one set of records is affected.

Questions to resolve before implementation