Material Participation Time Logs

By Jason Watson, CPA
Posted Sunday, May 25, 2025

There is a ton of chatter about time logs. Spreadsheets with dropdowns, conditional formatting, and built-in pivot tables. Neat. So much effort is spent on the right data that people lose sight of four fundamentals-

Your time log must be done in real-time, or what the IRS considers contemporaneous. This is usually not a huge deal but it is surprising how many court cases mention that the records were not kept in real-time.

Next, your time log must highlight not just your time, what you did and the location, it must also contain the time spent by others on your rental activities. This demonstrates your exhaustiveness or completeness in recording all time spent, not just yours.

Next, your time log must appear credible. To support credibility, you will likely need to recall details surrounding the time or moments spent. You will also need to be reasonable. In Escalante v. Commissioner, Tax Court Summary Opinion 2015-47, the rental property owner listed hundreds of hours for writing checks and reviewing mortgage statements. The Tax Court considered how long it would take them to write their own checks based on their own experience of daily life.

Finally, your time log must be corroborated with other transactions or by disinterested third parties. You claim that you spent 6 hours replacing a toilet, and you also demonstrate two separate trips to Lowe’s with receipts. The first is the toilet. The second has all the crud that you forget to get the first time. Perfect! However, in Pourmirzaie v. Commissioner, Tax Court Memo 2018-26, the rental property owner’s time log showed her being at the rentals every single Saturday performing “weekly cleaning and repairing” work. Unfortunately, her bank and credit card statements showed purchases in other locations besides her rental properties. Oops.

Sidebar: Frankly, the fancier the design of your time log with colors and fancy charts the more likely it is fabricated. Sure, that is not fair, we get it, but adding a bunch of bells and whistle to an otherwise simple time log is like putting lipstick on a pig (pun intended for you passive income generator types). Keep it simple. Support your entries. Done.

This is akin to a mileage log. It is a common misconception that just a mileage log is all you need to defend your automobile expenses. Not true. You also need corroboration such as service receipts from your dealership or Jiffy Lube supporting beginning and ending odometer reads.

Is a time log always required? No. Treasury Regulations Section 1.469-5T(f)(4) reads-

(4) Methods of proof.
The extent of an individual’s participation in an activity may be established by any reasonable means. Contemporaneous daily time reports, logs, or similar documents are not required if the extent of such participation may be established by other reasonable means. Reasonable means for purposes of this paragraph may include but are not limited to the identification of services performed over a period of time and the approximate number of hours spent performing such services during such period, based on appointment books, calendars, or narrative summaries.

Is this suggesting that a written log is not needed if participation can be established by other means? Yes. But be careful!

Here is a win for the real estate investor. In Birdsong v. Commissioner, Tax Court Memo 2018-148, the taxpayers did not maintain contemporaneous records but testified credibly to their activities. Here is a blurb from the ruling-

Petitioners testified credibly and in detail about petitioner wife’s active and extensive management of their rental properties. Furthermore, petitioners presented detailed spreadsheets that reflected petitioner wife’s rental management activities exceeded the 750-hour requirement. We find petitioners’ narrative summary and thorough time logs convincing because petitioners owned numerous rental units that petitioner wife operated alone. See Hailstock v. Commissioner, (holding that the taxpayer’s credible testimony regarding time spent operating multiple properties alone satisfied the section 469(c)(2) requirements). Petitioners’ testimony is further buttressed by petitioner wife’s thorough time-keeping as well as the receipts and invoices petitioner wife produced to corroborate her time logs.

On the basis of petitioners’ testimony and the record as a whole, we conclude that petitioner wife, pursuant to section 469(c), materially participated and is a real estate professional. Accordingly, petitioners’ loss attributable to their rental real estate is not limited by the passive activity loss rules of section 469.

But the Tax Court also gave a little spanking in a footnote-

Although we caution petitioner wife to construct more strictly contemporaneous time logs for her future endeavors, we find her credible testimony and time logs to be a “reasonable means” of proof. See sec. 1.469-5T(f)(4), Temporary Income Tax Regs., 53 Fed. Reg. 5727 (Feb. 25, 1988).

Take the win! At the risk of de-emphasizing time logs, recall that in Hailstock v. Commissioner, Tax Court Memo 2016-146, the rental property owner did not keep a log with specific hours. The Tax Court accepted her narrative and stated “we find petitioner’s narrative summary convincing because she owned numerous rental properties and conducted her business as a “one-man operation” without being otherwise employed.”

Keep a time log please! 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

Also, since you need to track other people’s time as well, many rental property owners will purchase a web-enabled cipher lock and assign discrete door codes to each participant. Each cleaner, repair person, property manager, listing agent, etc. would have a separate door code which can then be downloaded into a time log with time and date stamps. This is especially useful for the 100 hours and more than anyone else material participation test. It also shows your level of sophistication should your time tracking come into question.

Spouse Participation

There is a difference between the 750 hours requirement and material participation in each rental property or as a group if formally elected. For the 750 hours, you cannot combine your time with your spouse. At least one must qualify on their own.

However, and conversely, your material participation in an activity, such as a rental property, includes your spouse’s material participation. This applies even if your spouse did not own any interest in the activity, and you and your spouse do not file a joint tax return for the year.

What does this mean? Let’s say one spouse is a real estate agent, and the other spouse does all the work on the rental properties directly and satisfies the material participation tests. The real estate agent spouse is truly the qualified taxpayer, or what the industry calls the real estate professional, and materially participates in the rental activities vis-a-vis the other spouse.

Hotel-Like Services

We recently had a client who could not meet the material participation rules. She later claimed that she provided hotel-like services such as daily or within-stay linen changes, concierge service, tours and airport shuttle transportation. Since she could not meet the 100 hours and more than anyone else or substantially all hours as part of the material participation tests, we gently pressed for clarifications.

Aside from providing some brochures of local activities and a home-grown dining guide to check the concierge services box, it came down to the semantics of providing hotel-like services and offering hotel-like services. In other words, she offered daily linen changes, tours and airport transportation, but guests never closed the loop and used the services.

We were left with a rental property owner who could not substantiate material participation but claimed to be operating a hotel. Since the tax return would not be very defensible on merit and with our due diligence coming into question, WCG CPAs & Advisors declined to continue with the engagement. The more words needed to explain your tax position suggests your tax position is already a bit wobbly.