What is considered material participation?

You are considered a material participant in an activity if you meet one of the following criteria:
  • During the tax year, you participated in the activity for more than 500 hours.
  • Your participation in the activity during the tax year constituted a substantial amount of all the participation in the activity from all individuals and non-owners.
  • During the tax year, you participated in the activity for more than 100 hours and your participation is at least as much as that of any other person.
  • The Significant Participation Test: During the tax year, you participated in many different activities, none of which, by themselves, constitute material participation. However, if you spend at least 100 hours in each activity and the total hours of all activities are greater than 500 hours, then you are considered a material participant in each activity.
  • You materially participated in the activity for any five tax years within the 10 tax years preceding 2014. The five tax years don't need to be consecutive.
  • In a personal service activity, you materially participated for any three tax years (not necessarily consecutive) preceding 2014. Personal service activities are defined as any trade or business in which capital is not a substantial income producing factor. Examples include, but are not limited to the following: professions of health, law, engineering, accounting, the performing arts, architecture, and consulting.
  • You participate in the activity on a regular, substantial and continuous basis. According to the IRS, you do not qualify for this if you participate less than 100 hours in the activity.

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