Active participation is not the same as material participation.
Active participation is a less strict standard than material participation. For example, you may be treated as actively participating if you make decisions which significantly effect how the business is managed. Such decisions would include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions.
Only individuals can actively participate in rental real estate activities. However, a descendant's estate is treated as actively participating for its tax years ending less than 2 years after the descendant's death, if the decedent would have satisfied the active participation requirement for the tax year the descendant died.
A decedents qualified revocable trust can also be treated as actively participating if both the trustee and the executor (if any) of the estate choose to treat the trust as part of the estate. The choice applies to tax years ending after the descendant's death and before:
- 2 years after the descendant's death if no estate tax return is required, or
- 6 months after the estate tax liability is finally determine if an estate tax return is required.
The choice is irrevocable and cannot be made later than the due date for the estate's first income tax return (including any extensions).
Limited partners are not treated as actively participating in a partnership's rental real estate activities.
You are not considered to actively participate if, at any time during the tax year, your interest (including your spouse's interest) in the activity was less than 10% by value of all interests in the activity. If you are a limited partner, you are also not treated as actively participating in a partnership's rental real estate activities.
For more information on Active Participation see IRS Publication 925.