The Investor Hours Exclusion Under Temp. Reg. 1.469-5T(f)(2)

What is investor activity

Studying financial statements: reading P&L reports, balance sheets, cash flow statements without acting on them. Reading real estate trade publications without applying the information.

Reviewing summary management reports: receiving monthly reports from a property manager and reading them without taking action. The action makes the difference. Reading alone is investor activity.

Planning without management: thinking about future investments, researching markets, considering refinancing options without committing to specific transactions.

What counts as participation despite resembling investor activity

Bookkeeping for the activity (recording rent payments, tracking expenses) counts as participation. The activity directly relates to property operation.

Reviewing financial statements as part of an active management decision (deciding to refinance, approving a major repair) counts because the review is tied to specific action.

Communication with the property manager that directs action (instructing on rent increases, approving tenant improvements) counts as management activity.

Audit-defense documentation

Document activities with enough specificity that the IRS can verify whether they were investor or active. 'Reviewed financials' is investor activity unless tied to specific action ('reviewed financials and approved 5% rent increase on units 102, 105, 110').

Hassanipour, Hakkak, and Antonyan all lost partly because their logs failed to distinguish investor activities from active management. The defensible log specifies the action taken, not just the time spent.