A "passive loss is a loss from a business activity that a Taxpayer does not materially participate in."

Thus, taxpayers need to understand how they can be "deemed to materially participate in a business, and thereby avoid the passive loss limitation rules." The following are some of the ways a taxpayer may show material participation and thus avoid passive loss rules;

1. The Taxpayer participates more than 500 hours in the activity during the year, or
   
2. The Taxpayer's participation constitutes substantially all of the participation in the activity, or
   
3. The Taxpayer work's more than 100 hours per year in the activity and not less than any other person, including non-owners, or
   
4. The Taxpayer works more than 100 hours per year in each of several activities,totaling more than 500 hours per year in all such activities.

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