Vacation Rental Loss

[Bees Knees]

With The TaxBook. And when it refers to short term rentals the wording from page 7-12 is deficient:

"Not rental under passive loss rules [Reg. §1.469-1T(e)(3)].
An activity is not considered a rental activity if any
of the following apply.
• The average period of customer use of the
property is seven days or less, such as auto or
boat rental."

So one might be inclined to not think of short term rentals for condos and such.

Note the wording "not rental under passive loss rules." The passive loss rules treat all rentals as passive, regardless of active or material participation. So if it is not a rental under the passive loss rules, it means the rental is not automatically treated as a passive activity.

Passive rules have nothing to do with reporting something on Schedule E verses Schedule C. A Schedule C activity could be passive, or it could be non-passive. The rules for reporting something on Schedule C deal with whether or not services are provided. Thus, it is possible that a rental real estate activity where no personal services are provided is reported on Schedule E, but NOT subject to passive loss rules due to the rental being less than 7 days.

More than likely, a rental less than 7 days IS a Schedule C business because hotels, motels, and vacation condos usually provide some kind of personal services in addition to the rental of the unit itself. Something as simple as maid services could change it from rental real estate (reported on Schedule E) to a trade or business (reported on Schedule C).

[Burke]

So, a client who is retired, and rents a beach condo for 7 days or less on average, but does provide ALL the services involved: i.e, rental reservations and collections of rents thru his website, mostly to an established base of returning families, uses no mgmt firm; does repairs and maintenance himself, purchases and installs supplies and new items when necessary; arranges for cleaning of the units himself by a 3rd party, etc. etc, and meets the 100-hr rule ---- reports it on Sche C and takes all losses against ord income?

[veritas]

More specifically I was addressing

Note the wording "not rental under passive loss rules." The passive loss rules treat all rentals as passive, regardless of active or material participation. So if it is not a rental under the passive loss rules, it means the rental is not automatically treated as a passive activity.

Passive rules have nothing to do with reporting something on Schedule E verses Schedule C. A Schedule C activity could be passive, or it could be non-passive. The rules for reporting something on Schedule C deal with whether or not services are provided. Thus, it is possible that a rental real estate activity where no personal services are provided is reported on Schedule E, but NOT subject to passive loss rules due to the rental being less than 7 days.

More than likely, a rental less than 7 days IS a Schedule C business because hotels, motels, and vacation condos usually provide some kind of personal services in addition to the rental of the unit itself. Something as simple as maid services could change it from rental real estate (reported on Schedule E) to a trade or business (reported on Schedule C).

"• The average period of customer use of the
property is seven days or less, such as auto or
boat rental."

I would add short term rentals of condos/vacation rentals for more clarity.

[Jesse]

So, a client who is retired, and rents a beach condo for 7 days or less on average, but does provide ALL the services involved: i.e, rental reservations and collections of rents thru his website, mostly to an established base of returning families, uses no mgmt firm; does repairs and maintenance himself, purchases and installs supplies and new items when necessary; arranges for cleaning of the units himself by a 3rd party, etc. etc, and meets the 100-hr rule ---- reports it on Sche C and takes all losses against ord income?

Interesting question.

So thinking out loud, I would say yes if there is a profit motive. If no profit motive line 21 income/Schedule A deductions?

[Burke]

Thanks. While you are at it, take a gander at my 9/30/11 posting prior to this one and tell me what you think.