Significant Participation Activity

A significant participation activity (SPA) is a trade or business activity where you participate for more than 100 hours during the tax year, but your involvement doesn't meet the stricter "material participation" standards.

Overview

Table of Contents

Example:

Renting out a property and spending over 100 hours on repairs and maintenance, but not managing tenants or day-to-day operations.

Tax Impact

Potential Reclassification: If your combined SPA hours across all activities exceed 500 in a year, the income from those activities can be reclassified as non-passive. This means you can offset losses with other income, but any gains are taxed at higher ordinary income rates.
Material Participation: Simply meeting the SPA threshold doesn't automatically qualify you for material participation. You still need to meet one of the defined tests for full tax benefits.