What are passive losses?
A passive loss is thus a financial loss within an investment in any trade or business enterprise in which the investor is not a material participant. Passive losses can stem from investments in rental properties, business partnerships, or other activities in which an investor is not materially involved.
Does California recognize real estate professional?
California doesn’t conform to federal’s real estate professional provision, so all rentals are passive. You may be eligible for the special allowance if you have Active Participation. See the Calif Form 3801 Part II.
What is material participation in a business?
Material participation in this context means participation on a “regular, continuous and substantial” basis. Unless you’re a limited partner, you’re deemed to materially participate in a business activity if you meet just one of seven tests: You participate in the activity at least 500 hours during the year.