Significant Participation Activity

Example:

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

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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.

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References

§ 469 - Passive activity losses and credits limited