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* This is an excerpt from Business or Hobby? Active or Passive?

Due to depreciation, rental activities often generate net losses. Since rental activities are generally automatically passive under Code Sec. 469(c)(2) and (4), irrespective of whether the taxpayer materially participates, losses from rental activities are subject to the passive activity loss limitation rules. There are some exceptions, however. The first $25,000 of rental real estate losses may be deducted against nonpassive income by taxpayers that meet an active participation test. Also, rental real estate losses are fully deductible:

  1. on rental real estate of a real estate professional if the professional materially participates in the rental real estate activity (Reg. Sec. 1.469-9(e)(1))
  2. on the sale of a rental property to an unrelated party in a fully taxable transaction (Code Sec. 469(g))
  3. when the rental activity has been properly grouped under Reg. Sec. 1.469-4(d) with a business activity and the property is used in the business activity.

In the case of any natural person, a deduction of up to $25,000 ($12,500 if married filing separately) is allowed for that portion of the passive activity loss, or the deduction equivalent of the passive activity credit for any tax year, which is attributable to all rental real estate activities with respect to which the individual actively participated (i.e., the active participation standard) in such tax year (and if any portion of such loss or credit arose in another tax year, in such other tax year) (Code Sec. 469(i)(1) and (2)). Thus, the deduction is applied on an aggregate basis and not to each individual rental activity. The $25,000 (or $12,500 if married filing separately) is subject to a phaseout for individuals with modified adjusted gross income above $100,000 (or $50,000 if married filing separately). For every $2 of modified adjusted gross income that exceeds $100,000 (or $50,000 if married filing separately), the special allowance is reduced by $1 (Code Sec. 469(i)(3)(A); Code Sec. 469(i)(5)(A)(ii)). Thus, for example, when the adjusted gross income of a single taxpayer who meets the applicable requirements exceeds $150,000, the taxpayer cannot take advantage of the special allowance. At that point, rental real estate losses are deductible only to the extent of passive income (Code Sec. 469(i)(5)(A)).

The difference between active participation and material participation is that the former can be satisfied without regular, continuous, and substantial involvement in operations, so long as the taxpayer participates, e.g., in the making of management decisions or arranging for others to provide services (such as repairs), in a significant and bona fide sense. Management decisions that are relevant in this context include approving new tenants, deciding on rental terms, approving capital or repair expenditures, and other similar decisions. Thus, the active participation standard is a lower standard than the material participation standard. Unlike the material participation requirements, there are no specific hourly requirements. It is possible that the taxpayer can meet the active participation standard for a rental property even when there is an on-site manager or a real estate agent handling the property. However, the taxpayer must be exercising his independent judgment and not simply ratifying the decisions made by the manager (Madler v. Comm’r, T.C. Memo. 1998-112).

 

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*This is for information purposes only and is not a substitute for legal advice or recommendations.

Maximum profits in grain sorghum production depend on an effective and economical insect management program.

To plan such a program, producers must determine whether insects are present and the amount of damage being done. The “tools of technology” available in managing grain sorghum insects are cultural practices, the selective use of insecticides, insect scouting, transgenic varieties, and beneficial arthropods. The effectiveness of these tools can be maximized when used by all growers over a large area. Insect management does not mean reduction of the insect population to zero; instead it means a reduction below the level of economic damage.

This guide was compiled by both current and former Extension entomologists, plant pathologists, weed scientists, and a pesticide education specialist.

Download the Grain Sorghum IPM Guide. 

IPM guides for other crops as well as a general IPM overview, safety recommendations and directions for submitting samples can be found in the Integrated Pest Management Guides.

For questions about accessibility or to request accommodations, contact Extension Communications and Marketing at 334-844-5696 or extcomm@aces.edu.

Maximum profits in peanut production depend on an effective and economical insect management program.

To plan such a program, producers must determine whether insects are present and the amount of damage being done. The “tools of technology” available in managing peanut insects are cultural practices, the selective use of insecticides, insect scouting, transgenic varieties, and beneficial arthropods. The effectiveness of these tools can be maximized when used by all growers over a large area. Insect management does not mean reduction of the insect population to zero; instead it means a reduction below the level of economic damage.

This guide was compiled by both current and former Extension entomologists, plant pathologists, weed scientists, and a pesticide education specialist.

Download the Peanut IPM Guide. 

IPM guides for other crops as well as a general IPM overview, safety recommendations and directions for submitting samples can be found in the Integrated Pest Management Guides.

For questions about accessibility or to request accommodations, contact Extension Communications and Marketing at 334-844-5696 or extcomm@aces.edu.

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