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STR year-end operations

Run Your §469 Material-Participation (MP) Hour Math Before Year-End: The Self-Audit

Count the hours you have honestly logged against the 100-hour and 500-hour markers, subtract the three disallowed buckets, and decide whether your 2026 non-passive position actually holds. Seven weeks of Q4 run time between Nov 9 and Dec 31, if you need it.

Deep-dive expansion of item 1 in the STR year-end tax checklist, and companion to the year-end depreciation-timing guide: the honest-count worksheet and the four-outcome decision tree.

The 60-second answer

Bottom line: run your honest hour count against the §1.469-5T 100-hour and 500-hour material-participation (MP) tests before Dec 31. Subtract travel without stated business purpose and investor-type hours. Confirm no other individual (your cleaner, co-host, or property manager) logs more than you for the 100-hour (a)(3) test. If the gap to a threshold is not realistic in the weeks left, the 2026 loss is suspended under §469(b) and released on complete taxable disposition of the activity under §469(g)(1), per operation of law.

  • Count honestly against the thresholds. The 500-hour test under Treas. Reg. §1.469-5T(a)(1) is a solo marker (500+ hours in the activity, no participant comparison). The 100-hour test under (a)(3) requires 100+ hours AND no other individual participates more than you.
  • Subtract three disallowed buckets: investor activities under §1.469-5T(f)(2)(ii) (reviewing financial statements, strategic planning, reading tax guides); travel hours without a stated business purpose (§274(d) substantiation); and work not of a type customarily performed by owners of this STR under §1.469-5T(f)(2)(i), where the record also shows one of your main reasons for doing it was to avoid the passive-loss limit.
  • Count participant hours against yours. Cleaner, co-host, property manager, and handyman hours separately. The (a)(3) 100-hour path closes if any one of them participates more. Your spouse's hours aggregate with yours under §469(h)(5) and so do not count against this test.
  • Four outcomes. Clear 500 and well above others: aim for (a)(1). Clear 100 and participate more than anyone else: aim for (a)(3). Clear 500 across properties but need a §1.469-4 grouping election: CPA involvement. Below 100 with no realistic path: the loss suspends under §469(b) and releases on complete taxable disposition of the activity under §469(g)(1).
  • Spouse hours aggregate under §469(h)(5) regardless of filing status. Lock the record axes in real time from now through Dec 31; reconstruction after Dec 31 weakens the §1.469-5T(f)(4) "reasonable means" argument.

Not tax advice; general framework. Material participation is a facts-and-circumstances IRS determination; your CPA has the call on your specific facts.

What a year-end self-audit is (and is not)

A material-participation self-audit is your own honest count of your §469 hours against the 100-hour and 500-hour markers in Treas. Reg. §1.469-5T, run in November or December so there is still time to act. It is not an IRS audit, not a tax position, and not a certification. It is the Q4 planning exercise that lets you decide whether your 2026 non-passive position actually holds, whether to escalate hours in the weeks left, or whether the §469(a) disallowance applies and the loss suspends under §469(b) with release on disposition under §469(g)(1).

The self-audit sits inside the three record axes a taxpayer-safe §469 file carries: §469 material-participation hours (the subject of this guide), §469 average-stay (the 7-day STR exception under Treas. Reg. §1.469-1T(e)(3)(ii)(A), which pulls the activity out of the per se rental passive rule when average guest stays are 7 days or less), and §280A personal-use days (the greater-of-14-days-or-10%-of-rental-days ceiling). All three have to hold at the same time for an STR loss to flow against W-2 wages. This article focuses on the first axis; the year-end tax checklist walks the other two.

The honest-count worksheet below has seven steps. Each is a Q4 operational decision, not an educational detour. If you want the educational background (what the tests require, what activities count, how material participation is defined), the 100 vs 500-hour test guide and the material-participation definition guide cover that ground.

Step 1

Where do I pull the honest hour count from?

General information, not tax advice; confirm with your CPA.

Start with your primary log, whichever form that takes: a spreadsheet, a notes app, a dedicated tool, a paper calendar. Then cross-check against four corroborating sources, in order of substantiation strength:

  1. Platform messages. Timestamped guest communication (Airbnb, VRBO, Booking.com) is strong contemporaneous proof. Every message you sent or received anchors a point-in-time participation hour.
  2. Calendar entries. Dated appointments for showings, cleanings, inspections, and property visits.
  3. Bank and card transactions. Purchase dates for supplies, repairs, and mileage-generating gas fills are time-anchored and corroborate the activity happened.
  4. Email records. Vendor exchanges, service requests, and tenant correspondence with dates.

Build a simple two-column worksheet: honest hours (clearly rental-business work you can document) and generous hours (ambiguous categorizations, round-up estimates, memory-based reconstructions). The generous column is not fraud; it is the column that disputes concentrate on when the IRS challenges a §469 position. Separate it now so you know which hours sit on contemporaneous support and which do not. Treas. Reg. §1.469-5T(f)(4) accepts "any reasonable means" of proof, but the strength of that means is graded in court, and reconstruction weakens the argument.

Step 2

Which hours do I have to subtract?

General information, not tax advice; confirm with your CPA.

Three disallowed buckets are the gap most self-audits miss. Each one takes hours off your count before you compare against the 100-hour or 500-hour threshold.

Investor activity

§1.469-5T(f)(2)(ii) excludes investor-type work unless you are directly involved in day-to-day management: reviewing financial statements, broad market research, strategic planning, reading tax guides. The portion of your "STR hours" that is actually portfolio-level thinking does not count.

Travel without stated purpose

§274(d) requires substantiation: the business purpose, destination, miles, and date. A trip to deliver guest supplies has a stated purpose; a drive to drop off personal belongings or check on a family stay does not. Many spreadsheets don't flag travel without a stated purpose. Audit yours before you count hours.

Work not customarily performed by owners

§1.469-5T(f)(2)(i) excludes work from your count where (a) the work is not of a type an owner would customarily do and (b) one of your main reasons for doing it was to avoid the material-participation disallowance. Investment research unrelated to this specific STR, or tax-strategy reading dressed up as "operations hours," fits the two-part test. Keep it in a separate log for other purposes if useful; do not count it toward §469.

After the three subtractions, you have your honest count. This is the number you take to the next three steps.

Step 3

How do my hours compare against the participants?

General information, not tax advice; confirm with your CPA.

The 100-hour test under §1.469-5T(a)(3) is only yours if no other individual participates more than you in the activity. "Any individual" is broad: your cleaner, your co-host, your property manager, your handyman. (Your spouse's hours do not count here as "another individual," because §469(h)(5) aggregates them with yours. Step 6 covers the spouse mechanics in full.) The test is not about W-2 relationship; it is about participation hours.

Count each participant's hours separately. A cleaner at four hours per cleaning across 50 turnovers logs 200 hours. A co-host managing bookings at six hours per week over the active season logs 150 to 200. A property manager handling pricing and guest communication can easily log 100-plus for a mid-size property. If any one of them exceeds your count, the 100-hour (a)(3) path is closed to you.

Three options when a participant exceeds your hours: aim for the 500-hour (a)(1) test instead (no participant-comparison required); restructure the role so you participate more hours than the other individual (feasible if the gap is small and you have Q4 run time); or accept that the (a)(3) path is closed and the §469(a) disallowance applies, suspending the 2026 loss under §469(b) for release on disposition under §469(g)(1). Fabricating hours to beat the participant count is a §6662 accuracy-related-penalty risk. The co-host and property-manager participation guide walks the role-restructuring call in more detail.

Step 4

Which §469 path is open to me?

General information, not tax advice; confirm with your CPA.

The honest count plus the participant check puts you in one of four outcomes. The decision tree is simple; the honest categorization behind each node is the hard part.

Outcome A: §1.469-5T(a)(1), 500 hours

You clear 500 hours well above everyone else. The simplest statutory path and the strongest substantiation on the record. No participant comparison required. Lock the record axes and finish Q4 clean.

Outcome B: §1.469-5T(a)(3), 100 hours and participate more than anyone else

You clear 100 and your count exceeds every other individual's. Workable but riskier: if a cleaner's year-end hours creep past yours after a December deep-clean, the test fails retroactively. Keep a running participant-count check through year-end.

Outcome C: §1.469-4 grouping election

You clear 500 total hours across multiple STR properties but no single property qualifies. A §1.469-4 grouping election bundles the activities for the material-participation test. This is a CPA call; the election is binding across future years. One caveat: §469(c)(7), the rental real-estate-professional path, does not apply to STRs where the average guest stay is 7 days or less, because those are not rental activities for §469 purposes under §1.469-1T(e)(3)(ii)(A). If you have both short-stay and long-stay properties, the §469(c)(7) interaction is a CPA conversation, not an ad-hoc filing.

Outcome D: §469(b) suspension, §469(g)(1) release on disposition

Below 100 hours with no realistic path to 100 by Dec 31, or above 100 but another participant exceeds you with no restructuring option. In this case the 2026 loss is not a current-year offset against W-2 wages; it is suspended under §469(b) as a passive-activity loss, carried forward, and released on complete taxable disposition of the activity under §469(g)(1). This is the operation of the statute, not an elective deferral: the §469(a) disallowance kicks in by default when no MP test is met. Fabricating hours to clear a threshold is a §6662 accuracy-related-penalty risk and a §1.469-5T(f)(4) credibility risk.

Step 5

Can I realistically get there before Dec 31?

General information, not tax advice; confirm with your CPA.

Weekly-rate math. Subtract your current honest count from your target. Divide by the weeks between today and Dec 31. The result is the weekly rate of legitimate hours you would need to log to clear the threshold. If that rate exceeds what the property's actual Q4 workload supports, the §469(a) disallowance applies by operation of law and the loss suspends under §469(b) for release on disposition under §469(g)(1).

Example projections from Nov 9 (7.4 weeks to Dec 31)

  • You have 60 hours; need 100. Gap 40 hours. Weekly rate: 5.4 hours. The call is whether the property has roughly five hours per week of honest rental-business work still to do.
  • You have 320 hours; need 500. Gap 180. Weekly rate: 24 hours. The implied workload is close to a full part-time schedule; the call is whether a defined Q4 project (renovation, winter deep-clean, bookkeeping catch-up) actually supports it.
  • You have 420 hours; need 500. Gap 80. Weekly rate: 10.8 hours. Comparable to one full day per week of logged rental-business work.
  • You have 50 hours; need 100. Gap 50. Weekly rate: 6.7 hours. Fabricating busy-work to clear the line crosses into §6662 and §1.469-5T(f)(4) risk; the arithmetic alone does not decide the call.

The biggest honest sources of Q4 hours for most STR hosts: deep-cleaning a property between tenants, a scheduled repair project with real need (not manufactured), the Q4 booking cycle (listing optimization, pricing adjustments, guest communication for holiday bookings), bookkeeping catch-up for the whole year, and trip prep where you handle property management yourself (groundskeeping, winterization, maintenance).

Step 6

Does my spouse's participation help?

General information, not tax advice; confirm with your CPA.

IRC §469(h)(5) aggregates a spouse's participation in the same activity regardless of filing status. If you file separately, you still combine hours for the 500-hour (a)(1) and 100-hour (a)(3) tests. A common mistake, repeated in half the online guides, is that joint filing is required. It is not.

The practical implication for the self-audit: if you are at 70 hours and your spouse logged 50 in the same STR activity, your combined (a)(3) count is 120. The participant-count check in Step 3 still applies to every other individual: cleaner, co-host, manager. But between the two of you, the aggregation is clean.

A caveat for Step 3: your spouse's hours do not count against you in the (a)(3) "no other individual participates more" test, because §469(h)(5) aggregates them with yours. The individuals-count comparison runs against third parties, not against your spouse. The spouse participation guide walks the full math and the (a)(2) solo-owner nuance.

Step 7

How do I lock the record from today to Dec 31?

General information, not tax advice; confirm with your CPA.

Treas. Reg. §1.469-5T(f)(4) accepts "any reasonable means" of establishing participation. The weight courts have given different kinds of records tracks a rough ordering: contemporaneous entries made the same day typically sit on firmer footing than weekly summaries, which sit on firmer footing than a December spreadsheet of January-through-October estimates, which sit on firmer footing than "I remember" assertions. The IRS has discounted reconstructed logs where the taxpayer could not corroborate them with time-stamped evidence from the period in question.

Three operational rules for the remaining weeks: log the same day or at worst within the week, name the specific activity (not "worked on STR, 3 hours"), and tie each hour to a corroborating source where possible (a message sent, a calendar entry, a transaction). If you have to reconstruct January-through-October, flag that segment in the audit file honestly so your CPA knows which hours sit on narrative support versus contemporaneous. The free MP log template and how-to-track MP guide have the capture format; the material-participation proof guide walks the full 4-axis file structure. The companion year-end depreciation-timing guide covers the Q4 placed-in-service and bonus-depreciation calls that depend on the MP position holding.

Six red flags that make the self-audit unreliable

Patterns that tell you the self-audit result is not what you think it is. Review before you rely on the number.

Red flag 1. Generous categorization.

You rounded 2-hour and 4-hour sessions to "half-day" blocks. You counted "any time thinking about the STR." If the honest count is 60 hours and the generous count is 110, you have a 50-hour gap on contested support.

Red flag 2. Travel without stated business purpose.

Every drive to the property counted toward the hour total. §274(d) requires the business purpose be stated at the time, not inferred later. Mileage without stated purpose is a common substantiation gap in STR self-audits, and converting miles into "hours worked" conflates two different §274(d) tests.

Red flag 3. No participant-count check.

You chose the 100-hour (a)(3) test without ever counting the cleaner's, co-host's, or manager's hours. If any one of them exceeds you, the test fails retroactively.

Red flag 4. Personal-use days ignored.

The hour count is clean but a Dec 24-27 family stay pushes personal use past the §280A(d)(1) ceiling (greater of 14 days or 10% of rental days). The MP test does not save you if §280A reclassifies the property. Run both counts together.

Red flag 5. Platform-time counted toward MP without carve-out.

Guest communication, booking management, and listing maintenance count. But reviewing Airbnb's platform-wide tax guidance, reading STR tax strategy articles, or doing broader portfolio planning does not: that is investor-type work excluded by §1.469-5T(f)(2)(ii).

Red flag 6. Reconstruction after Dec 31.

If the honest audit shows most hours were logged for the first time in January from memory, the §1.469-5T(f)(4) "reasonable means" argument is weak. Reconstruction before Dec 31 with corroborating sources sits on stronger ground than reconstruction after Dec 31 for a non-passive position already taken, which is where IRS challenges and tax-court disputes concentrate.

General information, not tax advice; confirm with your CPA. Material participation is a facts-and-circumstances determination on your specific record; red flags identified here do not themselves decide the outcome.

How Field Ledger helps

General information, not tax advice; confirm with your CPA. Field Ledger is a record-keeping tool; the §469 position itself is a CPA call on your specific facts.

See your logged hour count against the 100-hour and 500-hour markers before Dec 31. The capture layer tags investor-type hours (reviewing financial statements, broader market research) at entry time so they do not inflate the MP total. Everything exports as a defensible §469 file for your CPA at year-end, with Schedule E categories preserved. On the self-audit specifically, four taxpayer-safe anchors matter:

  • • Per-activity hour categorization. Each entry carries an activity type at capture, so investor-category hours stay out of the MP total rather than being counted first and sorted later.
  • • §469 material-participation hour tracking that measures progress against the 100-hour and 500-hour test thresholds. Each entry carries the date you log it; entries made the same week sit on stronger §1.469-5T(f)(4) support than later reconstruction.
  • • §274(d) substantiation-aware mileage. Travel hours never auto-count toward MP, and mileage is logged with its own stated business purpose rather than being totaled into "hours worked." The two §274(d) tests (vehicle expense substantiation vs. time substantiation) stay separate at the capture layer.
  • • Participant tagging. Each entry carries a participant field from a fixed enum (owner, co-owner, vendor, manager), so a cleaner's hours tag as a vendor entry and a property manager's hours tag as a manager entry. The (a)(3) participant-count comparison runs against logged data rather than memory. Optional AI-assisted capture, where enabled on your plan, drafts the entry for you to review before anything saves.

What Field Ledger does not do: determine qualification, make the §1.469-4 grouping election, or file your return. The self-audit result is a report; the tax position is a CPA call. Field Ledger is the record layer that produces the defensible §469 file your CPA signs off on; the position itself lives with you and your tax preparer.

Run the self-audit this week, not in April

The honest count is the main year-end lever most hosts control. Pull the numbers, subtract the three disallowed buckets, run the participant-count check, and pick your path with the weeks still on the clock. The next step after the self-audit is either Q4 escalation or acceptance of the §469(b) suspension (with §469(g)(1) release on disposition), and both are better decided in November than in April.

Existing users: open your MP summary this week and run the self-audit against your 2026 log before Dec 1.

  • §469 material-participation hour log with per-activity categorization and the participant enum (owner, co-owner, vendor, manager)
  • §469 average-stay running total across the whole year
  • §280A personal-use day count against the greater-of-14-or-10% ceiling
  • §274(d) substantiation-aware mileage with stated business purpose, kept separate from logged hours
  • Year-end Schedule E export with the three record axes attached for the CPA handoff

Field Ledger's 714-day free trial is no-credit-card: enter one week of records, see your hours, stays, and personal-use days against each threshold, decide from there.

Start free trial: log your hours today

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Frequently asked questions

What is a material-participation self-audit?

A material-participation self-audit is a host's own honest count of their §469 material-participation hours against the 100-hour and 500-hour markers in Treas. Reg. §1.469-5T, run in November or December so there is still time to act if the count is short. It is not an IRS audit; it is the planning exercise that lets you decide whether your 2026 non-passive position actually holds, whether to escalate hours in Q4, or whether the loss will suspend under §469(b) with release on disposition under §469(g)(1). General information, not tax advice; confirm with your CPA.

What is the difference between the 100-hour and 500-hour material-participation tests?

The 500-hour test under §1.469-5T(a)(1) is a solo marker: 500 or more hours of participation in the activity during the year, and no comparison against other participants is required. The 100-hour test under §1.469-5T(a)(3) is conditional: 100 or more hours AND no other individual (cleaner, co-host, property manager, handyman) participates more than you. The hour thresholds themselves are bright-line numeric; what qualifies as a counted hour and whether an individual 'participates' in the activity are facts-and-circumstances determinations on your record. The 500-hour test is simpler to defend; the 100-hour test is more accessible but closes if someone else works more hours in the same activity. General information, not tax advice; confirm with your CPA.

Will I qualify for the STR tax loophole this year?

The three record axes have to hold at the same time, and no one but your CPA can sign off on the result. By Dec 31 you need: average guest stay 7 days or less in the activity for the year under Treas. Reg. §1.469-1T(e)(3)(ii)(A); personal-use days at or below the greater of 14 days or 10% of rental days under §280A(d)(1); and 500 hours of material participation under §1.469-5T(a)(1), or 100 hours under (a)(3) if no other individual (cleaner, co-host, property manager) participates more than you. Spouse hours aggregate with yours under §469(h)(5) regardless of filing status. Run the self-audit this week to see where each axis stands and whether a Q4 escalation closes the gap. General information, not tax advice; confirm with your CPA.

How many hours of material participation do I need by December 31?

Either 500 hours of participation in the activity during 2026 under Treas. Reg. §1.469-5T(a)(1), or 100 hours under (a)(3) provided no other individual participates more than you. Both counts are year-to-date against the honest log, after subtracting investor-type hours (§1.469-5T(f)(2)(ii)), travel without stated business purpose (§274(d)), and work not of a type customarily performed by owners (§1.469-5T(f)(2)(i)). The weekly rate for closing a gap: (target hours minus honest count so far) divided by weeks remaining to Dec 31. From Nov 9 forward that is roughly 7.4 weeks. Spouse hours aggregate with yours under §469(h)(5), so the household total is what you compare against the threshold. General information, not tax advice; confirm with your CPA.

Do my cleaner's hours count against my 100-hour test?

Yes, if the cleaner's hours exceed yours in the same rental activity. §1.469-5T(a)(3) requires that your participation be more than any other individual's for the test to succeed. If your cleaner logs 150 hours of cleaning and you log 110 hours of management, the 100-hour path is closed to you even though you cleared 100. Three paths from there: aim for the 500-hour (a)(1) test instead; redistribute work so you participate more hours than the cleaner going forward; or accept that the (a)(3) path is closed and the 2026 loss suspends under §469(b) with release on disposition under §469(g)(1). General information, not tax advice; confirm with your CPA.

Can I count travel time to and from the rental property as material-participation hours?

Only if the travel has a stated business purpose and the time is substantiated under §274(d). A trip to deliver guest supplies, inspect a maintenance issue, or close out a season has a stated business purpose; a drive to drop off personal belongings or check on a family stay does not. Some tools default-count all travel time, which overstates the honest count. Field Ledger's capture layer never auto-counts travel hours toward MP; mileage without a stated purpose is tagged separately, not totaled into 'hours worked.' General information, not tax advice; confirm with your CPA.

Do my spouse's hours count toward my material-participation test?

Yes. IRC §469(h)(5) aggregates a spouse's participation in the activity regardless of filing status. You combine hours for both the 500-hour (a)(1) and 100-hour (a)(3) tests. A common mistake is assuming a joint return is required; it is not. If you file separately and your spouse logged 50 hours in your STR activity, those add to your count. And because the aggregation treats spouse hours as yours, your spouse is not counted as 'another individual' for the (a)(3) comparison; that comparison runs against cleaner, co-host, property manager, and handyman. General information, not tax advice; confirm with your CPA.

What if my hour log is thin because I never logged contemporaneously?

Treas. Reg. §1.469-5T(f)(4) allows "any reasonable means" of establishing participation, which case law has read to include appointment books, calendars, email records, and narrative summaries. A log reconstructed in April from January memory sits on weaker footing than contemporaneous entries, and the IRS has discounted reconstructed logs when challenging a §469 position. Options: reconstruct Jan-Oct from the strongest corroborating sources you have (calendar entries, platform messages, bank transactions) and flag that segment honestly in the audit file; start logging in real time from today through Dec 31 so Q4 at a minimum sits on contemporaneous support; and discuss with your CPA whether the 2026 non-passive position holds on the record you can actually produce. General information, not tax advice; confirm with your CPA.

If I run my material-participation (MP) self-audit and come up short, can I still claim the STR non-passive position?

Only if you clear one of the §1.469-5T tests by Dec 31. If a realistic Q4 escalation gets you to 100 or 500 hours with honest work, the position is still available. If no realistic path exists, the 2026 loss is suspended under §469(b) by operation of §469(a) and released on complete taxable disposition of the activity under §469(g)(1); it is not a current-year offset against W-2 wages. Fabricating hours to clear a threshold is a §6662 accuracy-related-penalty risk and a §1.469-5T(f)(4) credibility risk. General information, not tax advice; confirm with your CPA.

Does platform time (writing listings, responding to inquiries, managing bookings) count toward material participation?

Direct guest communication, inquiry response, booking management, pricing updates, and listing maintenance generally count as participation in the rental activity because they are work customarily performed by owners of a short-term rental business. Hours spent reviewing financial statements, reading tax guides, or doing broader market research look more like investor activity and are excluded by §1.469-5T(f)(2)(ii). The honest line is 'work directly tied to running this specific STR,' not 'any time I spent thinking about my STR portfolio.' General information, not tax advice; confirm with your CPA.

Related guides

Statutory sources

  • IRC §469: Passive activity losses and credits limited (including §469(b) carryforward of suspended passive losses, §469(h)(5) spouse aggregation, §469(c)(7) real-estate-professional election): Cornell LII
  • IRC §280A: Disallowance of certain expenses for business use of a home or dwelling unit, §280A(d)(1) 14-day / 10% personal-use ceiling: Cornell LII
  • IRC §274(d): Substantiation required for travel, mileage, and listed-property deductions: Cornell LII
  • IRC §6662: Accuracy-related penalty on underpayments: Cornell LII
  • Treas. Reg. §1.469-1T(e)(3)(ii)(A): Short-term rental 7-day average-stay exception: Cornell LII
  • Treas. Reg. §1.469-4: Definition of activity and grouping election: Cornell LII
  • Treas. Reg. §1.469-5T: Material-participation tests, including (a)(1) 500-hour, (a)(3) 100-hour, (f)(2)(ii) investor-activity exclusion, (f)(4) reasonable means of proof: Cornell LII

The key takeaway

General information, not tax advice; confirm with your CPA.

The §469 material-participation test is a counting problem wrapped around a categorization problem. The thresholds are fixed by the statute; the main lever a host controls at year-end is which hours are honestly in the count and whether the record can support them. Run the self-audit this week, subtract the three disallowed buckets, check the participants, and pick a path with the weeks still on the clock. The §469(b) suspension (with §469(g)(1) release on complete taxable disposition of the activity) is operation of law when the MP test fails; it is a cleaner outcome than a fabricated non-passive position that falls apart under §1.469-5T(f)(4) scrutiny.