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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22743
Experience:  Taxes, Immigration, Labor Relations
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Hi we own a rental duplex and a rental condo. The condo is

Resolved Question:

Hi we own a rental duplex and a rental condo. The condo is out of state and 100% managed. We manage and maintain the duplex 100%. My wife is a full time real estate professional and we file jointly.

Am I correct that we do not materially participate in the condo but that we do materially participate in the duplex?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Lev :

Hi and welcome to Just Answer!

Customer:

Hi!

Customer:

There is no answer

Lev :

A rental activity is a passive activity even if you materially participated in that activity, unless you materially participated as a real estate professional.
For Material participation tests - see IRS publication 925 - http://www.irs.gov/publications/p925/ar02.html
Material participation tests. You materially participated in a trade or business activity for a tax year if you satisfy any of the following tests.
1.You participated in the activity for more than 500 hours.
2.Your participation was substantially all the participation in the activity of all individuals for the tax year, including the participation of individuals who did not own any interest in the activity.
3.You participated in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual (including individuals who did not own any interest in the activity) for the year.
4.The activity is a significant participation activity, and you participated in all significant participation activities for more than 500 hours. A significant participation activity is any trade or business activity in which you participated for more than 100 hours during the year and in which you did not materially participate under any of the material participation tests, other than this test. See Significant Participation Passive Activities, under Recharacterization of Passive Income, later.
5.You materially participated in the activity for any 5 (whether or not consecutive) of the 10 immediately preceding tax years.
6.The activity is a personal service activity in which you materially participated for any 3 (whether or not consecutive) preceding tax years. An activity is a personal service activity if it involves the performance of personal services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital is not a material income-producing factor.
7.Based on all the facts and circumstances, you participated in the activity on a regular, continuous, and substantial basis during the year.

Thus - if these are two separate activities - because they are related to separate rental properties - and you need to verify Material participation tests separately for each activity - and it is possible you materially participated in one activity and do not in another.

Customer:

ok. we grouped these rentals together last year so it sounds like we materially participated in both for 2011,2012 and the future....

Lev :

As long as these are separate properties - these are treated as separate rental activities.

Customer:

is it possible to depreciate a rental faster than 27.5 years?

Lev :

Unfortunately - no - residential rentals are depreciated over 27.5 years.
You may depreciate separately some elements. For instance - carpeting may be depreciated over 5 years.


 

Customer:

ok thanks for the help Lev

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22743
Experience: Taxes, Immigration, Labor Relations
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