What is a requirement for an individual to claim participation in real property trades?

To claim participation in real property trades, an individual must demonstrate material participation in the business. This means actively engaging in the operations of the rental activity, which may include managing the property, making management decisions, or providing services to tenants. To qualify as a material participant, the individual typically needs to meet certain criteria set by the IRS, such as being involved for a significant amount of time and taking an active role in the business.

This requirement is crucial because material participation determines whether the income from these activities will be categorized as passive or non-passive. Only non-passive income can be fully deducted against other income, making this distinction important for tax purposes.

While having a real estate broker's license or being involved in only development projects might be valuable in certain contexts, they do not inherently meet the requirements for claiming participation in real property trades. Participating in at least one rental agreement is also not sufficient on its own without the necessary material involvement in the management and operation of the rental activities.