If you are a real estate professional who wants to treat all your real estate interests as one activity, you may now make a late election under new guidance.

The passive activity loss disallowance rules apply to any trade or business in which you do not materially participate. You are treated as materially participating in an activity if you meet at least one of seven tests specified in the regulations.

As a general rule, any rental activity is considered a passive activity, regardless of your level of participation in the activity. However, the general rule for rental activities does not apply to a qualifying real estate professional.

You are considered to be a qualifying real estate professional for a tax year if:

• You perform more than half of your personal services during that year in real property trades or businesses in which you materially participate; and
• You perform more than 750 hours of services during that tax year in real property trades or businesses in which you materially participate.

Usually, for a qualifying real estate professional, the passive activity loss rules are applied as if each rental real estate interest is a separate activity. However, you may elect to treat all of your real estate interests as one activity. This election often makes it easier to meet the material participation test.

Normally, the election is due with a timely-filed tax return. If you overlook the election, you must meet the test individually for each activity.

Now, in Revenue Procedure 2011-34, the IRS has provided guidance that allows a late election in limited circumstances. You are eligible to make the late election if all of the following apply:

• You failed to make the election solely because you failed to timely meet the requirements specified in the regulations.
• You filed your returns as if you had made the election for all years including and following the year you intend the election to be effective.
• You timely filed each return that would have been affected by the election.
• You have reasonable cause for failing to make the election.

If you are not eligible to make a late election under the revenue procedure, you may request relief by applying for a private letter ruling and paying the required user fee.