How to prove that an activity performed was "material participation" in real estate
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Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes
2yHey Marc,
When tracking your real estate activities for STR management, particularly to prove material participation, it's important to clearly document each task you perform. For example, if you had a 1-hour conversation with a general contractor (GC) about renovations, you can simply summarize this in your activity log. Include the date, duration, and a brief summary of what was discussed (e.g., "Discussed renovation plans with GC for STR property"). While it's not required to take a snapshot of the phone call, you can keep call logs or email exchanges as backup for extra support if needed. The key is to be detailed and consistent in your logging.
For our clients, we provide a custom spreadsheet to help track activities more effectively. It’s designed to capture all relevant details, including hours worked, descriptions of tasks, and the specific nature of the involvement. However, only the time you personally spend on managing or coordinating the property counts. If the GC is performing work on the property, you can only log the time spent communicating with the GC or overseeing the project—not the hours they work independently on your behalf. This ensures you accurately reflect your active involvement in managing the STR.
6 Replies
- Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
Hey Marc,
When tracking your real estate activities for STR management, particularly to prove material participation, it's important to clearly document each task you perform. For example, if you had a 1-hour conversation with a general contractor (GC) about renovations, you can simply summarize this in your activity log. Include the date, duration, and a brief summary of what was discussed (e.g., "Discussed renovation plans with GC for STR property"). While it's not required to take a snapshot of the phone call, you can keep call logs or email exchanges as backup for extra support if needed. The key is to be detailed and consistent in your logging.
For our clients, we provide a custom spreadsheet to help track activities more effectively. It’s designed to capture all relevant details, including hours worked, descriptions of tasks, and the specific nature of the involvement. However, only the time you personally spend on managing or coordinating the property counts. If the GC is performing work on the property, you can only log the time spent communicating with the GC or overseeing the project—not the hours they work independently on your behalf. This ensures you accurately reflect your active involvement in managing the STR. - Accountant · Pasadena, CA · Member since 2014 · 102 posts · 36 votes2y
Hi Marc -It is generally acceptable to summarize your activities in your log. For example, you can write something like:"Spoke with GC for 1 hour regarding renovations for STR property, discussed scope of work, timeline, and cost estimates." While a detailed log is often sufficient, adding additional documentation can strengthen your record.
You cannot count the time that the general contractor (GC) spends working on the property as your own time in the activity log. The IRS is clear that only time You directly spend. However, you can log the time you spend coordinating with or supervising the contractor, such as meetings, phone calls, and site visits. - 2ySean GrahamBusiness MemberInvestor , CPA · Detroit, MI · Member since 2016 · 587 posts · 249 votes
Quote from @Account Closed:
Hey Marc,
When tracking your real estate activities for STR management, particularly to prove material participation, it's important to clearly document each task you perform. For example, if you had a 1-hour conversation with a general contractor (GC) about renovations, you can simply summarize this in your activity log. Include the date, duration, and a brief summary of what was discussed (e.g., "Discussed renovation plans with GC for STR property"). While it's not required to take a snapshot of the phone call, you can keep call logs or email exchanges as backup for extra support if needed. The key is to be detailed and consistent in your logging.
For our clients, we provide a custom spreadsheet to help track activities more effectively. It’s designed to capture all relevant details, including hours worked, descriptions of tasks, and the specific nature of the involvement. However, only the time you personally spend on managing or coordinating the property counts. If the GC is performing work on the property, you can only log the time spent communicating with the GC or overseeing the project—not the hours they work independently on your behalf. This ensures you accurately reflect your active involvement in managing the STR.@Marc Shin this is a good answer. Also keeping a calendar is great backup.
Maven Cost Segregation Tax Advisors554 Reviews - Accountant · San Diego, CA · Member since 2019 · 1k+ posts · 552 votes2y
Quote from @Sean Graham:
Quote from @Account Closed:
Hey Marc,
When tracking your real estate activities for STR management, particularly to prove material participation, it's important to clearly document each task you perform. For example, if you had a 1-hour conversation with a general contractor (GC) about renovations, you can simply summarize this in your activity log. Include the date, duration, and a brief summary of what was discussed (e.g., "Discussed renovation plans with GC for STR property"). While it's not required to take a snapshot of the phone call, you can keep call logs or email exchanges as backup for extra support if needed. The key is to be detailed and consistent in your logging.
For our clients, we provide a custom spreadsheet to help track activities more effectively. It’s designed to capture all relevant details, including hours worked, descriptions of tasks, and the specific nature of the involvement. However, only the time you personally spend on managing or coordinating the property counts. If the GC is performing work on the property, you can only log the time spent communicating with the GC or overseeing the project—not the hours they work independently on your behalf. This ensures you accurately reflect your active involvement in managing the STR.@Marc Shin this is a good answer. Also keeping a calendar is great backup.
Thank you for saying so, Sean! - 2yJason MalabuteBusiness MemberAccountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 914 votes
Hey Mark,
You’re on the right track with logging your activities! Like Zachary and Andrew mentioned, the key is to make sure you document everything clearly. Just note the date, time, property, and who you spoke with, then add a quick summary of what was discussed (e.g., "Talked with GC for 1 hour about renovation plans, budget, and timelines for STR"). If the GC charged you for that time, add the cost in the log too.
No need to go crazy with phone snapshots, but keep emails or texts as backup just in case. The important thing is that you can only count your time spent coordinating, managing, or overseeing work, not the GC’s time on-site. So logging those conversations, meetings, or site visits you’re involved in will cover you.
Using a spreadsheet to track everything can make life easier, especially if you’re logging hours often. If it’s clear and consistent, you’re in good shape
Malabute & Company CPAs527 Reviews
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