FORM: Weekly Summary of Landlord-Management Activities

Publication: The Real Estate Investor’s Goldmine of Brilliant Tax Strategies

Goldmine Section Reference: Section 26
Author: Albert Aiello, CPA, MST, RE Broker
Publisher: ISU\Information Services Unlimited -- 1-215-937-9207
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- EXPLANATION & INSTRUCTIONS -

Background: With the “passive loss” limitations (PAL), tax losses from owning rental
property (e.g. Schedule E losses) are passive losses and can only be deducted against
net income in the same category, passive income, which is net taxable rentals and
gains from rental property activities. No current deduction for these losses is allowed
against other types of income, such as salaries, fees, commissions, net business
income, interest, dividends, etc. Unused losses are suspended and carried forward until
there is sufficient passive income (which can take years).

Unlimited rental loss deductions for active real estate entrepreneurs: Active
real estate entrepreneurs can now fully deduct the above losses against the above
other types of income without limit and immediately pocket the tax savings. Under
IRC 469(c)(7), they can do so regardless of the amount of rental losses and
regardless of the amount their adjusted gross income, provided they meet all five
requirements listed below.

OVERVIEW OF FIVE REQUIREMENTS FOR THIS PROVISION:

REQUIREMENT 1: YOU MUST BE AN “ELIGIBLE” TAXPAYER - Investors eligible for

this relief provisions are taxpayers who are individuals (includes joint tenants and
tenant-in-common), general partnerships, LLC’s and S-corporations. C-corporations
qualify if 51% or more of their gross receipts come from real property trades or
businesses (defined below) in which the corporation materially participates (defined
below). Not eligible are limited partnerships, estates, irrevocable trusts and C-
corporations who do not meet the above 51 % test.

REQUIREMENT 2: YOU MUST BE IN A “REAL PROPERTY TRADE OR BUSINESS”

- This includes just about every type of real estate business: development, construction,
acquisition, conversion, rental, management, leasing and brokerage. The lucky ones? --
builders, developers, “rehabers”, rental property owners, property managers, leasing
agents and real estate agents.

REQUIREMENT 3: YOU MUST PERFORM MORE THAN HALF (51%) OF YOUR

PERSONAL-SERVICES TIME IN ONE OR MORE OF THE ABOVE REAL PROPERTY

BUSINESSES IN NUMBER 2 ABOVE

REQUIREMENT 4: YOU MUST PERFORM 751 HOURS (OR AN AVERAGE OF

ABOUT 14-1/2 HOURS A WEEK) IN ONE OR MORE OF THE ABOVE REAL

PROPERTY BUSINESSES IN NUMBER 2 ABOVE
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REQUIREMENT 5: YOU MUST “MATERIALLY PARTICIPATE” IN THE

MANAGEMENT OPERATIONS (LANDLORDING) OF THE PROPERTY BY INCURRING
A CERTAIN AMOUNT OF HOURS IN THE MANAGEMENT OF THE PROPERTY
(Landlord-Management is one category of the real estate businesses in requirement 2
above). This means meeting any one of the following three alternate tests in managing
and operating the property:

(a) Incur 501 hours a year (or an average of about 10 hours a week); or (b) Incur 101
hours a year (or an average of about 2 hours a week) provided that no one else
(including co-owners, employees and property managers) are participating with more
hours than the investor; or (c) Incur 71% or more of the business hours managing the
property. (This one could allow the investor to satisfy this requirement with less than
101 hours)
Overall purpose: To totally bypass passive loss limits and allow for the full
deduction of rental property losses by meeting the above tests for this relief
provision.

Specific purpose: This form will greatly facilitate meeting requirement 5 of the
above, which is: You must “materially participate” in the landlord-management
operations of the property, 1.469-4(d); Reg. 1.469-5T.

TAX TIP: Your spouse’s time counts for meeting the above tests, Reg. 1.469-
9(c)(3).

TAX BREAK: The same time you document for landlording-management time for
meeting this “material participation” requirement, you also count for meeting the real
estate business 51% service and 751 hour requirements, documented on the form,
Weekly Summary of Real Property Business Activities (FMOPSBUS).

How-to-use: Either on a weekly or daily basis, just simply fill in the number of hours
next to the preprinted applicable landlording-management activity on the form. In
doing so make sure you are complying with the above hourly requirements. Each
active co-owner and each active spouse should also use this form.

Use This Form With The Other Form, Weekly Summary of Real Property
Business Activities: The form, Weekly Summary of Real Property Business
Activities (FMOPSBUS), is used to meet the real estate business activities of
requirements 3 and 4. These business activities also include the landlord-
management activities of this requirement (#5). Therefore, use this form in
conjunction with the above form, Weekly Summary of Real Property Business
Activities (FMOPSBUS). By using the two forms together, you are simultaneously
meeting requirements 3, 4 and 5. Also, in the last column fill in any auto miles you
incur for each activity. Now you also document auto expenses.
Audit Proof: Here you document the required hours as per Regulation 1.469-5T(f)(4)
and IRS Publication 925. Keep this as a back up form as part of Automatic Pre-Audit
Preparation.
Also, use the form, Audit Proofing Statement -- Eligibility to Fully Deduct Rental Losses
(FMOPSPA), to reduce or eliminate the chances of an IRS audit in the first place.

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COPYRIGHT 2001 - ISU- ALL RIGHTS RESERVED (\RETAXDK2\FMOPSMGT)

FORM: Weekly Summary of Landlord-Management Activities

[IRS Regulation 1.469-5T(f)(4)]

For the week ending______/__________/_____________

NAME OF PROPERTY OWNER______________________________________________

MANAGEMENT ACTIVITY______________________________ Auto

Hrs. Miles
1. Analyze the rental market, including vacancies....................................................... _____ _____

2. Set\raise rents........................................................................................................ _____ _____

3. Market the property for rental................................................................................ _____ _____

4. Show the property for rental................................................................................... _____ _____

5. Decide the rental terms for tenant leases................................................................. _____ _____

6. Take tenant applications and thoroughly screen tenants.......................................... _____ _____

7. Approve or disapprove tenants............................................................................... _____ _____

8. Prepare the leases................................................................................................... _____ _____

9. Review leases with tenants...................................................................................... _____ _____

10. Move-in processing............................................................................................... _____ _____

11. Move-out processing............................................................................................. _____ _____

12. Clean & prepare units for rental............................................................................. _____ _____

13. Collect rents.......................................................................................................... _____ _____

14. Handle any tenant evictions or other tenant problems............................................. _____ _____

15. Initiate new rental & tenant selection policies (in accord with Fair Housing)................ _____ _____

16. Create management efficiency by reducing operating expenses............................... _____ _____

17. Review for additional sources of property income (such as laundry facilities).......... _____ _____
 18. Do or discuss renovations for property expansion................................................... _____ _____

19. Hire a management company or resident manager.................................................. _____ _____

20. Hire & recruit maintenance personnel..................................................................... _____ _____

21. Supervise the resident manager, maintenance personnel & other mgmt. pers........... _____ _____

22. Approve all capital or repair expenditures for management efficiency..................... _____ _____

23. Decide who makes,or is to be responsible for repairs, maintenance & improve....... _____ _____

24. Initiate\review strategies for property security, safety & sanitation.......................... _____ _____

25. Review any property maintenance and service contracts (heater, exterm., etc.) _____ _____

26. Set up purchasing procedures for maintenance supplies & materials........................ _____ _____

27. Shop & purchase for maintenance supplies & materials.......................................... _____ _____

28. Review the reserve for the replacement of improvements, appliances, etc............... _____ _____

29. Personally inspect the property for maintenance & management efficiency............ _____ _____

30. Personally talk to the tenants for maintenance & management improvement........... _____ _____

31. Review the insurance needs of the property for management efficiency................... _____ _____

32. Review & update overall property management & operational procedures.............. _____ _____

33. Prepare and update the resident’s management newsletter or handbook.................. _____ _____

34. Review MR. Landlord and other property management publications....................... _____ _____

35. Other____________________________________________________________ _____ _____

TOTAL HOURS\MILES.......................................................................................... _____ _____

In doing the above it is my intention to comply with the recordkeeping requirements of Regulation 1.469-5T(f)(4) and
IRS Publication 925 for the management and operation of my rental activity.

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(signature of rental property owner) Date
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COPYRIGHT 2001 - ISU- ALL RIGHTS RESERVED (\RETAXDK2\FMOPSMGT)