Avoinding SE tax using a Limited PS
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If your client provides maid service during the time that the place is being rented then I would agree on a Sch C but just renting a fully furnished place does not make it a Sch C, nor does the owner having someone come in after the renter has left to ready the place for a new renter.DIY programs are not a replacement for a good tax proComment
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Maybe not as tenants come and go, but doing it as guests come and go on weekly or more basis 52+/- times a year is a bit more than renting a fully furnished place. I bet toilet paper, paper towels, soap. shampoo etc, etc is also provided, lawn service, snow shoveling and plowing.Comment
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Maybe not as tenants come and go, but doing it as guests come and go on weekly or more basis 52+/- times a year is a bit more than renting a fully furnished place. I bet toilet paper, paper towels, soap. shampoo etc, etc is also provided, lawn service, snow shoveling and plowing.Dave, EAComment
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The definition of "Material Participation", leading to "Real Estate Professional" seems to be the question. The following is a link to how the IRS defines "Material Participation" in its Passive Activity Loss ATG:
This is especially interesting because the audit guide presented argues against rental losses being taken as ordinary under almost any circumstances. The guide seems to indicate that losses (and therefore income) from rental activities are passive even if the owner materially participates and shows that an auditor is to carefully screen the return to prevent taxpayers from erroneously claiming ordinary losses from rental activities when the IRS considers substantially ALL rental activity to be passive in nature. I already posted the exception.
That said, what about hotels and motels? They are a bona fide business operation and their income/losses wouldn't be passive, would they? Does your client's cabin rental operation meet the definition of a motel? Maybe. Would the IRS deny an ordinary loss from these rentals, and argue that the loss is passive? Maybe.
Is your client a Real Estate Professional? If not, then I think this belongs on Sch E.Comment
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Found this on a different CPA site:
He has several cabins that he rents out to vacationers during the year. They are rented out by the day, and sometimes for the week. i.e., a group of snow skiers from Southern CA want to come up the the area and spend a week skiing. They would rent one of his cabins for the week. All rentals are short term. This is a Sch C activity, not E.
Tax Tip: If you are renting on a month to month basis or any period greater than a week, you do not have a problem. The key is that the average rental period must be more than seven days. For example, during the busy summer months rent out by the week but then fill in during the off season for reduced rates with two weeks or month rentals to get your average rental period to be greater than seven days.Comment
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Sometimes goose chasing is a good thing!
Actually I had one of those "Oh Sh!t" moments, as I have a client that has cabins rented out for short periods, anywhere from a weekend to two weeks. I've been reporting on schedule C for several years now. I had to rediscover the reason I concluded Schedule C and not Schedule E.
Like it or not we learn from our mistakes, I'd rather the mistake be around this virtual water cooler rather than on an actual return! A good tax pro can't see in only black and white because Facts and circumstances create shades of grey.Comment
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