Material participation
Certified Financial Planner glossary · Certified Financial Planner
Definition
Regular, continuous, and substantial involvement in an activity, established by any one of seven statutory tests.
Material participation in plain English
A client wants passive rental losses to offset W-2 wages and claims "I help with the property." Material participation means regular, continuous, and substantial involvement, established by any one of seven statutory tests (hours, facts-and-circumstances, and related rules). Without it, losses often stay trapped in the passive basket. Saying you are "involved" is not enough on the exam; the stem will hint at hours or one of the tests. Active participation for the $25,000 rental allowance is a different, easier standard, so keep the labels straight.
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