In what scenario is rental real estate not considered a passive activity?

Rental real estate is typically classified as a passive activity, meaning that income derived from it does not count as active income for the purpose of determining participation in business activities. However, when a taxpayer materially participates in the rental activity, it shifts the classification away from passive.

Material participation involves regular, continuous involvement in the operations of a rental activity, which can include making management decisions, finding tenants, overseeing repairs, and similar tasks that demonstrate significant engagement. According to the IRS guidelines, if a taxpayer meets certain tests for material participation, the rental activity can be treated as non-passive, which means that any income generated could be subject to more favorable tax treatment and could offset other types of income.

The other options reflect scenarios where the taxpayer's level of engagement with the rental activity does not meet the criteria for material participation, thereby maintaining its classification as a passive activity. For instance, if no hours are logged, or if the taxpayer is completely absent for an entire year, it indicates a lack of involvement, reinforcing the passive nature of the income. Actively managing multiple properties may suggest some level of participation, but without meeting specific thresholds for material involvement set by the IRS, it may still not change the classification of those activities as passive.

Therefore, the