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Chapter 5 Introduction

PostedMay 26, 2025

material participationBy Jason Watson, CPA
Posted Sunday, May 25, 2025

Chapter 5 dives deep or double clicks or whatever is the latest phrase into one of the most critical and misunderstood concepts in rental real estate investment- material participation. Unlike active participation, material participation requires a higher level of engagement in the rental activity. We also explain how to move your rental activity from the IRS’s default classification of “passive,” where losses are limited, to “non-passive,” where losses can offset W-2 income, capital gains, and other sources. The key? Proving that you materially participate in your rental business. Shocker, considering the chapter title.

The chapter clarifies the difference between material participation and real estate professional status (REPS), and how the two intersect (although we have a dedicated chapter to REPS later). Key topics include how to log qualifying hours, what time doesn’t count (like investor or research hours), and how using a property manager affects your eligibility. Aggregation elections under Treasury Regulation 1.469-9(g) are also covered as a strategic option to reduce the hours spent burden.

Jason Watson, CPA, is a partner and the CEO of WCG CPAs & Advisors, a boutique yet progressive tax, accounting and rental property consultation firm with over 80 team members headquartered in Colorado serving real estate investors worldwide.

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I Just Got A Rental, What Do I Do? 2025 Edition

Rental BookThis KB article is an excerpt from our 420+ page book (some picture pages, but no scatch and sniff) which was updated May 25, 2025, and is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or visit our webpage which provides more information.

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Talk to a Real Estate CPA About Your Rental Property

Please use the form below to tell us a little about yourself, and what you have going on with your investments and wealth-building objectives. WCG CPAs & Advisors are real estate CPAs, tax strategists and rental property consultants, and we look forward to talking to you!

The tax advisors, business consultants and rental property experts at WCG CPAs & Advisors are not salespeople; we are not putting lipstick on a pig expecting you to love it. Our job remains being professionally detached, giving you information and letting you decide within our ethical guidelines and your risk profiles.

We see far too many crazy schemes and half-baked ideas from attorneys and wealth managers. In some cases, they are good ideas. In most cases, all the entities, layering and mixed ownership is only the illusion of precision. As Chris Rock says, just because you can drive your car with your feet doesn’t make it a good idea. In other words, let’s not automatically convert “you can” into “you must.”

Let’s chat so you can be smart about it.

We typically schedule a 20-minute complimentary quick chat with one of our Partners or our amazing Senior Tax Professionals to determine if we are a good fit for each other, and how an engagement with our team looks. Tax returns only? Business advisory? Tax strategy and planning? Rental property support?

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Previous Chapter 4 Frequently Asked Questions
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