The decision in plain language
The goal is to compare realistic choices before documents are signed, funds move, or a filing position is fixed. A useful analysis ties the tax rules to your actual facts, timing, cash needs, alternatives, and records.
This page is an educational starting point. It is not a conclusion about your facts.
What changes the answer
- Your tax basis and amount at risk in each activity.
- Whether the activity is treated as a rental activity under the applicable facts.
- Your participation in the activity and the quality of the supporting records.
- Whether real estate professional status applies and whether material participation is met.
- Prior-year suspended losses, current passive income, and any disposition during the year.
- Federal and state differences.
Paths a Decision Memo may compare
- Use some or all of the loss currently when the relevant requirements are satisfied.
- Suspend the loss for possible use against future passive income or upon a qualifying disposition.
- Improve contemporaneous records prospectively without overstating past participation.
- Revisit activity grouping or operating arrangements when the facts and rules support doing so.
The relevant paths depend on what remains legally and practically available before your deadline.
Records to gather
- Current and prior tax returns
- Basis and debt schedules
- Depreciation reports
- Participation logs and calendars
- Property management agreements
- Emails, invoices, and vendor records supporting work performed
Phænix confirms a tailored records list before paid work begins. Sensitive documents should be shared only through the secure portal provided for an engagement.
Timing matters
Bring the question forward before the transaction or filing position becomes permanent. The standard Decision Memo is generally delivered within 5 to 10 business days after the agreed records are complete and accepted. A deadline can change the scope or make analysis impractical, so identify it in the Readiness Intake.
What you leave with
A Decision Memo defines the question, states the material facts and assumptions, compares viable alternatives, models the relevant federal and state consequences, and gives you a written CPA recommendation with next steps. It is designed to help you act, coordinate with other professionals, and preserve the reasoning behind the decision.
Important distinction
Real estate professional status and material participation are separate inquiries. Meeting one requirement does not automatically establish the other, and short-term rental classification involves a different analysis.
Authoritative starting points
These IRS resources explain the underlying federal framework. They are not a substitute for applying current law to your facts.