"Real Property Trade or Business" exception.

This exception is to the passive loss limitation rules, not to passive activity rules as a whole. Thus, while the result may be that the loss limitation rules do not apply, the related activities (real estate rental) remain passive activities.

For an individual to qualify for nonpassive treatment, the taxpayer MUST satisfy BOTH of the following:

• More than half of the personal services that the taxpayer performs in trades or businesses are performed in real property trades or businesses in which the tapayer materially participates.

• The taxpayer performs more than 750 hours of services in these real property trades or businesses as a material participant.

While a spouse's work may be considered in determining if a taxpayer is a "material participant," it cannot be taken into account to determine if the taxpayer meets this 750-hour requirement.

AND, services performed as an employee do not count unless the taxpayer owns more than a 5% interest in the employer.

A "closely held C corporation" can qualify for nonpassive treatment if more than 50% of its gross receipts for the year are from real property trades or businesses in which it materially participates.

A "real property trade or business" is any real property development, redevelopment, construction, acquisition, conversion, rental operation, management, leasing, or brokerage trade or business.