The More-Than-Half Test: What to Record When You Also Have Another Job

The more-than-half requirement is not a fixed hours target. It is a comparison between qualifying real property services and all of your personal services in trades or businesses during the tax year.

That is why a careful rental log may still be only one side of the file. If you also have a job, consulting practice, operating business, or another trade or business, your CPA needs facts about that work too.

The statute asks two separate annual questions

Section 469(c)(7)(B) provides that both requirements must be met:

• More than one-half of the taxpayer’s personal services in all trades or businesses must be performed in real property trades or businesses in which the taxpayer materially participates.
• The taxpayer must perform more than 750 hours of services in those real property trades or businesses.

The word more applies to both comparisons. Exactly one-half is not more than one-half, and exactly 750 hours is not more than 750 hours.

Neither test replaces the other. A person could record 900 qualifying real property hours and 1,100 hours in another business. The 750-hour requirement may be satisfied on those assumed facts, but 900 of 2,000 total personal-service hours is not more than half. This is only arithmetic to illustrate the difference, not a conclusion for any taxpayer.

Build the denominator instead of guessing it

Many rental work reports focus on the possible numerator: services in qualifying real property trades or businesses. The denominator is broader. Treasury Regulation section 1.469-9 defines personal services for this purpose as work performed by an individual in connection with a trade or business.

For an outside job, gather records that show the work pattern rather than relying on the job title:

• employer schedule and stated work hours;
• pay periods and dates employed;
• timecards or project records when available;
• paid leave, unpaid leave, and changes in schedule;
• business travel and training records; and
• notes about overtime, seasonal work, or reduced schedules.

A salary does not by itself reveal hours. A standard schedule may be useful, but note departures from it. Do not subtract holidays, leave, or breaks mechanically without evidence and professional review.

For self-employment or another operating business, use calendars, client files, invoices, task records, and other contemporaneous sources. The goal is a supportable comparison, not a denominator chosen to produce a preferred percentage.

A real estate job has an employee limitation

Working for a brokerage, property company, construction business, or other real estate employer does not automatically place employee hours in the qualifying real property service total. Section 469(c)(7)(D)(ii) and section 1.469-9 generally provide that personal services performed as an employee are not treated as performed in a real property trade or business unless the taxpayer is a five-percent owner of the employer.

Keep documents showing:

• the employer and legal entity;
• the services and employment dates;
• direct and indirect ownership information;
• dates of ownership changes; and
• records relevant to the five-percent-owner definition.

Do not remove employee hours from the entire comparison simply because they may be excluded from qualifying real property services. Their treatment in the denominator and numerator is a point for your CPA to analyze under the full rule.

Qualifying services require more than a property label

The statute refers to real property trades or businesses in which the taxpayer materially participates. It lists development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, and brokerage trades or businesses.

Putting real estate in an entry title does not establish that the service belongs to such a business or that material participation exists. Record the actual task, business context, property, and outcome. Keep management-company work, direct rental work, development work, and investor review distinguishable.

The material-participation regulation generally excludes investor activities such as studying financial statements unless the taxpayer is directly involved in day-to-day management or operations. A factual task description allows review of that boundary. A category selected after year-end may hide it.

The spouse rule does not combine the comparison

For a joint return, one spouse must separately satisfy both annual service requirements. Spouse A cannot use Spouse B’s hours to cross more than 750 or to make Spouse A’s qualifying services more than half of Spouse A’s personal services.

Spouse participation generally is attributed for material-participation purposes under section 1.469-5T(f)(3). That separate rule does not create a household numerator for the annual REPS requirements.

Maintain an individual report for each spouse. Record the actual performer on shared property work, and keep each spouse’s outside-job or business records separate.

Prepare a comparison your CPA can trace

Use a worksheet with factual buckets, not a pass-or-fail badge:

1. Services in each possible real property trade or business.
2. Services in employment and other trades or businesses.
3. Entries awaiting classification, with the reason for uncertainty.
4. Sources supporting each material estimate or work schedule.
5. The arithmetic using unrounded totals.

Preserve the entries beneath every subtotal. If one category changes after review, the denominator, numerator, and percentage should update without rebuilding the year from scratch.

HostHours can supply a report of work recorded for rental properties. It does not capture every hour at another job, decide which business is a real property trade or business, apply the employee ownership rule, or determine REPS. Use the app’s total as one source within the comparison.

The best pre-meeting check is to ask whether the outside-work side is documented with the same care as the rental side. If the answer is no, collect employer and business records before relying on a percentage.

Sources

• 26 U.S.C. section 469, Passive activity losses and credits limited
• 26 CFR section 1.469-9, Qualifying taxpayer and employee rules
• 26 CFR section 1.469-5T, Material participation
• IRS Publication 925 (2025), Passive Activity and At-Risk Rules

This article provides general educational information. It does not determine tax status, material participation, deduction eligibility, or the treatment of a specific activity. Review your facts with a qualified tax professional.