Which statement is CORRECT with respect to active participation in rental real estate?

Active participation in rental real estate is a concept defined by the IRS to allow taxpayers to utilize certain tax benefits, particularly for individuals who are actively involved in the management of their rental properties.

The statement indicating that a taxpayer must hold a 10% or greater ownership interest is correct because one of the criteria for qualifying as an active participant involves having a significant enough interest in the property to be engaged in its management decisions. This ownership percentage is crucial as it distinguishes active participation from passive activities, allowing the taxpayer to potentially claim certain tax deductions related to rental activities.

Active participation allows for various benefits under tax law, such as the ability to deduct losses from real estate activities on the taxpayer's Form 1040. Thus, members in partnerships or entities where ownership is diluted below the minimum threshold may not be eligible for the same treatments or benefits associated with rental real estate activities.

This concept underscores the importance of ownership level in determining active participation status, which in turn impacts the overall tax treatment of rental income and losses.