Find the definition of active participation in rental real estate activity. This is an important tax topic to understand if you own rental property.

Under Code Sec. 469, to actively participate in a rental real estate activity for purposes of the $25,000 loss offset, a taxpayer must participate in the activity in a significant and bona fide sense. A taxpayer participates if he or she makes management decisions, e.g., approves new tenants, decides on rental terms, approves capital or repair expenditures, or arranges for others to provide services (such as repairs). The taxpayer need not have regular, continuous, and substantial involvement in operations. But a merely formal and nominal participation in management, without a genuine exercise of independent discretion and judgment, is insufficient.

The participation of a taxpayer's spouse is taken into account in determining whether the taxpayer actively participates. (Code Sec. 469(i)(6)(D))

A taxpayer is not treated as actively participating (except as regs may provide) with respect to any interest as a limited partner. (Code Sec. 469(i)(6)(C))