how does material participation impact taxes 
a taxpayer who is materially participating in an activity is allowed to deduct the total amount of losses on their taxes under passive activity rules a taxpayer who is passively participating in an income generating activity is limited in the deductibility of losses 7the bottom linewhether your participation in a particular income generating activity is active or passive can affect your tax liabilities to help you determine which it is the irs has developed seven tests you can use to evaluate your participation if your activity counts as material participation you ll typically be able to deduct the total amount of losses your deductions are limited in the case of passive activity 