How To Materially Participate With A Property Manager

By Jason Watson, CPA
Posted Friday, November 28, 2025

A common myth among newer real estate investors, especially short-term rental owners is that hiring a property manager (PM) automatically kills your chance at material participation. You might say, Doesn’t the PM’s company report hundreds of hours and beat me anyway?

This sounds plausible, and serves as a good warning sign, but it is not entirely true. Recall that the most used material participation test is 100 hours and no one did more than you.

As such you can materially participate when using a property manager provided you understand how hours work, how the “no one does more than you” test is actually applied, and what activities you can legitimately count toward your total (which we just discussed before).

The 100 Hours Material Participation Test Revisited

To reiterate, to materially participate two things matter with this test:

• You must personally hit at least 100 hours, and
• No single individual logs more hours than you.

This second requirement is where property managers create confusion. Rental property owners often assume that the PM entity in aggregate counts as a single participant. It does not. Under Treasury Regulations Section 1.469-5T hours are attributed to individuals, not entities. A property management company doesn’t “perform” hours. People do.

Paragraph (a) starts off with-

In general. Except as provided in paragraphs (e) and (h)(2) of this section, an individual shall be treated, for purposes of section 469 and the regulations thereunder, as materially participating in an activity for the taxable year if and only if-

The rest of the material participation regulations uses the word “individual” about a zillion times.

Therefore, if your PM has five different employees who collectively rack up 250 hours, that sounds intimidating, sure, but unless one of those humans exceeds your time, you haven’t lost the test. The listing agent at 68 hours, the assistant at 91, a cleaner at 86, a seasonal maintenance guy at 42- none of them individually beat you. Collective hours don’t matter. The rule is measured human-by-human. Divide and conquer, right?

This is why good PMs understand the need for time tracking. The ones worth their salt already have processes for logging hours because sophisticated investors ask for this routinely. Let’s not forget that some employees are paid hourly anyway, so the PM is already tracking this to bill your owner account.

How Do You Get 100 Hours With A Property Manager

The real challenge isn’t beating the PM’s hours. The real challenge is hitting 100 hours of your own work, consistently, in real life.

One hundred hours is roughly two hours a week, every week, which is achievable but not trivial, especially if the PM handles the bulk of the day-to-day work. While we’ve just discussed a bunch of tasks and duties that count towards material participation, let’s reiterate a few specific to coordination with a property manager-

• Even if the PM sources leads, the owner can still review bookings (or applications), evaluate rental criteria, approve or deny, etc.
• Anytime the PM says “We need approval for swapping out the refrigerator,” your evaluation time counts when reviewing quotes and price checking, researching materials or methods, comparing contractor options among related things.
• While closely related to investor activities (which do not count), reviewing repair logs, property reports and rent analysis, variances and related problems, rent comps, competitive analysis and pricing adjustments are common operational duties.

Also, let’s not forget DIY maintenance. Let the PM handle simple or quick items like a lock swap or accepting a refrigerator delivery, but you can pop in for a few days to paint, pressure wash and stain the deck, perform seasonal maintenance, etc. Just make sure this work is actually necessary and not manufactured for the sake of material participation hours (you would never!). Substance beats form every time, and pigs get fed while hogs get slaughtered.

Material Participation Travel Time

Travel time counts only if tied to an activity that itself counts. Flying or driving long distances is permissible but only if you actually perform operational work once you arrive.

For example, you drive 12 hours, spend a weekend painting and repairing, and drive 12 hours home. All 24 hours of travel count because the operational work anchors the trip. But if you hot lap it to the rental property and confirm that it hasn’t burned to the ground despite every home automation app reporting happy news, and you do nothing to the property itself, that’s a commuter-style trip and does not count.

Let’s not forget that the overall situation must be reasonable as well- to drive 30 hours one way to steam clean the carpets seem a bit nutty. In other words, this seems disproportionate to the economic value and may fail the economic substance doctrine test (meaningful change that has a substantial non-tax purpose).

Strategy For Using A Property Manager With Your Rental

A cleaning crew of three is better than a cleaning crew of one, not only because of risk mitigation through diversification but all their hours are separated. If each cleaner logs three hours, that’s nine total but no single individual (as the tax code refers to) has more than three hours. That leaves you ahead or at least comfortably competitive.

The same applies to maintenance teams, handymen (handypersons just doesn’t roll off the tongue), landscapers, and seasonal workers. More individuals performing small tasks means fewer hours per person, which makes the “no one does more than you” test a snap.

Also, if a cleaning crew gives you a January–December summary in mid-January for rental property tax return preparation, and one cleaner logged 120 hours to your 101 hours, it’s too late to fix anything. December is gone. You cannot Marty your butt in a DeLorean.

Instead, ask for monthly or quarterly time logs, electronically store them with your own logs, verify the hours by task, and reconcile them before year-end. Property managers already track this internally because they bill by time or tasks. They simply need to export or share the data more frequently.

Putting It All Together

Material participation with a property manager is absolutely attainable. The material participation treasury regulations are clear that hours are counted by individual, not by a business entity. The key is making sure that:

• you reach 100 hours (which can be a challenge in itself),
• no single human, person, individual, soul beats you, and
• you have contemporaneous records for everyone involved (of course you do!).

Rental property owners, especially those working the STR loophole angle and need property manager assistance, who combine operational decision-making, strategic maintenance work, periodic onsite labor (sweat equity), and proper travel-time documentation can confidently hurdle the material participation threshold even with a full-service property manager.

Keep in mind too that you can leverage this alongside the Significant Participation Activity (SPA) material participation test. If you have several rentals and only one or two are managed by a property manager whose employees (individuals) spend more time than you on those specific activities, that does not automatically sink your year. Under SPA rules, you can still combine all your significant participation activities and materially participate across the group as a whole.