San Diego Landlord Education: What is Active Participation?


A real estate concept that you may not be aware of is called active participation. This allows someone to deduct up to $25,000 of rental real estate losses when they meet certain criteria.

Landlord Education: Active Participation

Active participation is defined as someone who is active in the property by making management decisions. These decisions might include which tenants should be approved for the property, and how the expenses will be paid and allocated. If you’re making management decisions regarding the rental property, you will be considered an active investor.

San Diego Property Management

You can be an active investor even if you’re working with a property management company. It still applies if you have professional help with your rental; you simply have to establish that you’re a major part of the decision making process. This is the standard you have to meet and if you do meet it, you are eligible to deduct up to $25,000 of rental real estate losses.

Income Requirements

This active participation concept applies if your income is under the $150,000 threshold. To take advantage of this deduction, make sure your adjusted gross income is less than $150,000.

Here’s an example. If someone has $25,000 in losses because they own three rental properties, they can deduct those losses when their income is in the right range. Perhaps they make $125,000. So, they are midpoint between $100,000 and $150,000. That means they can deduct 50 percent of the total loss, or $12,500.

Your first step is to decide if you meet the criteria for active participation. Then, you need to check your income level before you take this deduction. If you have any questions or need any help, please contact us at Mercer Properties