Below, find details about how a taxpayer can provide proof of participation in real estate activities for federal tax purposes.

According to Reg. Sec. 1.469-5T(f)(4), “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,” including “but 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.” The Courts, while recognizing that the regulations are somewhat ambivalent on this issue, have frequently denied taxpayers eligibility as a real estate professional because of inadequate, untimely, or irreconcilable records. Uncorroborated estimates of the time devoted to real estate activities have caused many taxpayers to lose their cases. The Tax Court will not allow a post-event “ballpark guesstimate” of hours of participation. (Bailey v Commissioner, T.C. Memo 2001-296)

So, a taxpayer trying to qualify as a real estate professional for purposes of the Sec. 469(c)(7) rule should keep contemporaneous records (appointment books, calendars, or narrative summaries) of the number of hours spent performing services (both in real estate trades or businesses and other personal services). Notations should be specific as to the amount of time spent and activities performed.