Can my business partner's hours count as my participation?

The direct answer

A partner's work generally is not treated as your own participation simply because you share ownership. Spouse participation has a specific rule that unrelated partners do not share. Evaluate each owner's facts and the applicable participation test rather than relying on the partnership's total hours.

A practical example

Illustrative example, not a client result: Two unrelated owners split operations. Each should maintain their own records and review the test that supports their individual tax treatment.

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