Taxpayer is an excavator. He is also a Real Estate Pro.
Taxpayer has an apartment building built by a building contractor. Taxpayer spend a few hours excavating the cellar hole and landscaping.
Taxpayer starts to rent the property in October 2020. He performs all the work in operating the rental property, about a couple hundred hours worth.
It seems that his activity in the rental property can qualify as material participation only under:
1.469-5T(a) (2) The individual's participation in the activity for the taxable year constitutes
substantially all of the participation in such activity of all individuals
(including individuals who are not owners of interests in the activity) for such year;
OR
1.468-5T(a) (3) The individual participates in the activity for more than 100 hours during the taxable year,
and such individual's participation in the activity for the taxable year is not less than
the participation in the activity of any other individual
(including individuals who are not owners of interests in the activity) for such year;
So, does the period that the apartments are constructed count when ones counts the hours involved in the activity? For if I count the hours of " individuals who are not owners of interests in the activity" during the construction period, the taxpayer does not materially participate.
Section 469(h) seems to focus on participation in the operations of an activity.
(h) Material participation defined
For purposes of this section -
(1) In general - A taxpayer shall be treated as materially participating in an
activity only if the taxpayer is involved in the operations of the activity
on a basis which is -
(A) regular,
(B) continuous, and
(C) substantial.
The reg is not as specific.
1.469-4 "defines" activity. For a trade or business activities 'conducted in anticipation of the commencement of a trade or business is included in the definition of activity. But, rental activities are "defined' under 1.469-1T(e)(3).
1.469-1T(e) (3) Rental activity—(i) In general. Except as otherwise provided in this paragraph (e)(3), an activity is a rental activity for a taxable year if—
(A) During such taxable year, tangible property held in connection with the activity is used by customers or held for use by customers; and
(B) The gross income attributable to the conduct of the activity during such taxable year represents (or, in the case of an activity in which property is held for use by customers, the expected gross income from the conduct of the activity will represent) amounts paid or to be paid principally for the use of such tangible property (without regard to whether the use of the property by customers is pursuant to a lease or pursuant to a service contract or other arrangement that is not denominated a lease). remainder of definition was not helpful - delineated between rental and trade or business activities.
For this taxpayer, I am inclined to treat the activity as consisting of just the rental operations.