MATERIAL PARTICIPATION · TEST 2 OF 7
The Substantially-All Participation Test
No hour minimum, no comparisons, no lookbacks: if your participation constitutes substantially all of the participation in an activity for the year, you materially participate. This is the test for the owner who does essentially everything themselves.
What the test requires
Under Reg. §1.469-5T(a)(2), you materially participate when your participation makes up substantially all of the total participation in the activity — including participation by people who are not individuals, such as employees or contractors. There is no fixed hour threshold. If you are genuinely the only person doing the work, or your contribution dwarfs everyone else's, this test can be met with far fewer than 500 hours.
"Substantially all" is not defined by a bright-line percentage, which makes documentation especially important: you need to show not just your hours, but the full picture of who did what.
Who this test fits
This test fits solo operators: the Airbnb host who cleans, messages guests, restocks, handles maintenance calls and does the books with no cleaner, no co-host and no manager. It also fits owners of a single small rental where one person truly does everything. If anyone else performs meaningful work in the activity — a regular cleaner, a handyman on retainer, a co-host — this test becomes harder to claim.
What counts as participation
Everything you do in the activity counts, measured against everything anyone does. That includes the hours of employees, contractors and managers, so keep a realistic picture of third-party work too. As with the other tests, pure investor activities generally do not count unless tied to day-to-day management. The question the test asks is simple: of all the human effort that went into this activity, was substantially all of it yours?
How to document it
Because there is no hour target, your log needs to tell a complete story: what you did, when, and — just as important — what little anyone else did. Log your work contemporaneously in PropHours, attach receipts and photos, and keep records of any contractor or cleaner invoices so you can show third-party involvement was minimal. A year-end export that shows hundreds of your entries against a handful of contractor invoices is exactly the shape of evidence this test wants.
Common mistakes
Ignoring other people's hours. The test compares your participation to everyone's. Forgetting the cleaner's weekly visits undermines the claim.
Assuming "I do most of it" is enough. "Most" and "substantially all" are different standards — be honest about the split.
No records of the negative. It is not enough to log your hours; keep the thin file on what others did too.
How many hours do I need for the substantially-all test?
There is no minimum. The test compares your share of total participation, not your absolute hours. In practice, solo operators often log a few hundred hours — but the ratio is what matters.
Can I use this test if I have a cleaner?
Possibly, if your participation still constitutes substantially all of the total. A cleaner who comes biweekly while you do everything else may be fine; a full-time manager is not. Document both sides honestly.
Does contractor work count against me?
Yes — participation by non-individuals counts in the denominator. Occasional contractor work for specialized repairs is normal; just keep the invoices so the totals are clear.
How is this different from the 100-hour test?
The 100-hour test requires more than 100 hours and at least as much as any other individual. The substantially-all test has no hour floor but demands a much larger share of total effort.
The other six tests
Browse all material participation guides.
Material participation requires meeting only one of seven tests: the 500-hour test, the 100-hour test, the significant participation activity test, the 5-of-10-year test, the personal service activity test, and the facts-and-circumstances test. Also see our free STR tax savings calculator.
This page explains the substantially-all test under Reg. §1.469-5T(a)(2) in general terms and is not tax advice. Whether you materially participate depends on your facts; review IRS Publication 925 and consult a qualified tax professional. PropHours records the work you log — it does not determine tax eligibility.