Material Participation- Normal Operations

By Jason Watson, CPA
Posted Saturday. March 21, 2026

Let’s step back for a moment and look at the pattern that has developed across this material participation timeline. We have spent the last few sections talking about the zillion things that will trip you up and disqualify your time should some suits want to challenge your time log.

So, what is left? Here are the leftovers. The pattern of material participation really looks like this:

• The Acquisition Phase. Most of your time is classified as investor activity and therefore does not count.
• The Pre-Opening Phase. The Richmond doctrine drops the hammer and says the business hasn’t started yet, and therefore your hours do not count.
• The In-Service Date. The property is finally ready, available, and held out for rent. The activity legally and practically exists. Cue the confetti. Celebrate… briefly… because now you have a real business with guests and tenants who are tough to impress.

From the in-service date forward, the real material participation analysis begins whether you are renovating between guests, managing tenants, or performing routine maintenance.

Material Participation Time Tracking

If you are looking for a way to easily track time, WCG CPAs & Advisors has partnered with REPSLog and you can download their app here-

https://wcginc.com/time

Material Participation Hours That Count

We discussed a lot of the time that does not count. Let’s come full circle and discuss what time does count as a general concept. Generally speaking, any work you perform in connection with an activity in which you own an interest is treated as participation in that activity. Some of the activities that count towards your hourly requirements include collecting rent, bookkeeping advertising, maintaining legal compliance, safety reviews, inspections, decorating, tenant approval, contractor supervision, procuring insurance, paying taxes, and actual hands-on maintenance.

Here is a list from IRS Notice 2019-7 with respect to rental activities being considered a trade or business as applied to IRC Section 199A-

(i) advertising to rent or lease the real estate;

(ii) negotiating and executing leases;

(iii) verifying information contained in prospective tenant applications;

(iv) collection of rent;

(v) daily operation, maintenance, and repair of the property;

(vi) management of the real estate;

(vii) purchase of materials; and

(viii) supervision of employees and independent contractors.

See our material participation time examples section for a whole bunch of actual duties, tasks, chores, etc. to punch your MP clock.

Confusing Participation Percentages

There is no perfect place for this, so we will address it here. The tax code surrounding real estate is a tangled web of percentages. Because there are so many different thresholds for different tax benefits, it is incredibly easy to conflate them. Let’s quickly decode the percentage soup:

• 1% For Material Participation. Can you materially participate in a rental property if you only own 1% of it? Technically, yes. The Treasury Regulations simply require that you own some interest in the activity. There is no statutory minimum percentage for material participation. That said, if you log 500 hours of free labor on a 1% stake while your partners golf, it looks a bit silly.
• 5% For REPS. If you work a W-2 job in the real estate industry (like a property manager or leasing agent), those W-2 hours generally do not count toward your 750-hour Real Estate Professional Status threshold unless you own at least 5% of your employer’s business. This has nothing to do with material participation, but we list it here to avoid confusion.
• 10% For Active Participation. If you can’t meet the high hurdle of material participation but still want to deduct up to $25,000 in rental losses against your W-2 income (within the passive activity loss income limitations), you rely on the active participation standard. To qualify for this special allowance, you must own at least 10% of the rental property.