Material participation pre-market

[Caitlin Fawcett]

I am about to put my first STR into service. I spent a lot of time getting it set up. Moving and assembling furniture, buying all of the necessary items. It was a blank slate when I bought it, but only needed to be painted and a closet door replaced in terms of "renovation". Would the hours I spent getting this condo ready before it is placed on the market count towards material participation hours or only after it is in service? I am hearing different things from different CPAs. Thank you!

[Stephen Nelson]

I think Reg. Sec.1.469-4(b)(1)(ii) says "yes". See boldfaced, italicized part of regulation quoted below:

(b) Definitions. The following definitions apply for purposes of this section—

(1) Trade or business activities. Trade or business activities are activities, other than rental activities or activities that are treated under § 1.469-1T(e)(3)(vi)(B) as incidental to an activity of holding property for investment, that—

(i) Involve the conduct of a trade or business (within the meaning of section 162);

(ii) Are conducted in anticipation of the commencement of a trade or business; or

(iii) Involve research or experimental expenditures that are deductible under section 174 (or would be deductible if the taxpayer adopted the method described in section 174(a)).