While a full examination of the material participation tests of Section 469 is beyond the scope of this post, the regulations under that section provide seven tests that if satisfied, will convert an activity from passive to nonpassive.

FORBES: Overview Of The New 3.8% Investment Income Tax, Part 1

Meeting the standard of material participation, and thereby turning an activity from passive to nonpassive, is obviously a critical consideration, for if an activity is passive, all of the income allocated to the individual owner will constitute net investment income under Prop.

FORBES: Overview Of The New 3.8% Investment Income Tax, Part 2: Passive Activities

It may appear that ramping up your hours to materially participate in an activity is a no-brainer, because by converting the activity from passive to nonpassive, you can pull the resulting income out of the computation of net investment income and save an extra 3.8% in tax.

FORBES: Overview Of The New 3.8% Investment Income Tax, Part 2: Passive Activities