Real Estate Professional Status

§ 469. Passive activity losses and credits limited(a) Disallowance(1) In generalIf for any taxable year the taxpayer is described in paragraph (2), neither—(A) the passive activity loss, nor (B) the passive activity credit, for the taxable year shall be allowed. (2) Persons describedThe following are described in this paragraph:(A) any individual, estate, or trust, (B) any closely held C corporation, and (C) any personal service corporation. (b) Disallowed loss or credit carried to next yearExcept as otherwise provided in this section, any loss or credit from an activity which is disallowed under subsection (a) shall be treated as a deduction or credit allocable to such activity in the next taxable year. (c) Passive activity definedFor purposes of this section—(1) In generalThe term “passive activity” means any activity—(A) which involves the conduct of any trade or business, and (B) in which the taxpayer does not materially participate. (2) Passive activity includes any rental activityExcept as provided in paragraph (7), the term “passive activity” includes any rental activity. (3) Working interests in oil and gas property(A) In generalThe term “passive activity” shall not include any working interest in any oil or gas property which the taxpayer holds directly or through an entity which does not limit the liability of the taxpayer with respect to such interest. (B) Income in subsequent yearsIf any taxpayer has any loss for any taxable year from a working interest in any oil or gas property which is treated as a loss which is not from a passive activity, then any net income from such property (or any property the basis of which is determined in whole or in part by reference to the basis of such property) for any succeeding taxable year shall be treated as income of the taxpayer which is not from a passive activity. If the preceding sentence applies to the net income from any property for any taxable year, any credits allowable under subpart B (other than section 27) or D of part IV of subchapter A for such taxable year which are attributable to such property shall be treated as credits not from a passive activity to the extent the amount of such credits does not exceed the regular tax liability of the taxpayer for the taxable year which is allocable to such net income. (4) Material participation not required for paragraphs (2) and (3)Paragraphs (2) and (3) shall be applied without regard to whether or not the taxpayer materially participates in the activity. (5) Trade or business includes research and experimentation activityFor purposes of paragraph (1)(A), the term “trade or business” includes any activity involving research or experimentation (within the meaning of section 174).