Question

During the year, Q, employed full time as an attorney, spent 550 hours managing an apartment complex he owns. The operation of the apartment complex is considered a passive activity a. True b. False

Answer 1

The operation of the apartment complex is considered a passive activity. True.

Generally, a passive activity is any rental activity OR any business in which the taxpayer does not materially participate.

The Internal Revenue Service (IRS) defines two types of passive activity:

• trade or business activities to which the taxpayer did not actively contribute, and
• rental activities.

Unless the taxpayer is a real estate professional, rental activities usually provide streams of income that are passive.

Thus the operation of the apartment complex is considered a passive activity by Q, who is a full time attorney.