Rental as a Business

[Kram BergGold]

My client has a vacation house in which he materially participates and it has an average rental period of 7 days or less. So it is not passive and he can deduct a loss. Is this activity reported on Schedule C like a B & B, or is it stil reported on Schedule E?

[Bees Knees]

Keep in mind that determining if something is a passive activity has nothing to do with determining if it is a trade or business. You can have a Schedule C treated as a passive activity due to lack of material participation. Likewise, you can have a Schedule E treated as non-passive under various passive loss exceptions.

The key for a trade or business is services rendered. A rental real estate activity is generally reported on Schedule E when the activity does not provide any significant services to the customer. The Schedule E instructions, on the other hand, say the following:

If you provided significant services to the renter, such as maid service, report the rental activity on Schedule C or C-EZ, not on Schedule E. Significant services do not include the furnishing of heat and light, cleaning of public areas, trash collection, or similar services.

Those instructions have nothing to do with the passive activity rules. For example, you could have employees performing those maid services and a manager employee managing those maid services with the owner doing nothing but owning and collecting the profits from the business. It would be reported on Schedule C as a trade or business because significant services are provided to the customer, but it would also be subject to the passive activity loss rules because the owner does not materially participate.

[Gretel]

more terminology

While at the subject to determine if rental property is a business activity or not: How about the new repair regulations? When is a property owner who does not provide services "in the business of leasing", hence eligible for this election for the "de minimis safe harbor election"?

1. Only RE professionals
2. If they are an entity like LLC, other than SMLLC
3. ???

I never was able to find a good answer to this question that also applies for issuing 1099"s. Anyone has a good source?

[ttbtaxes]

Take a look at:

Temp Reg 1.469-1T(e)(3)(ii) and Page 2-9 of the IRS PAL Audit Guide http://www.irs.gov/pub/irs-mssp/pal.pdf

Also you can check out:

PLR 9505002
PLR 9543003
TC Memo 1993-359 Floyd A. and Joanna R. Toups v. Commissioner

[Kram BergGold]

No significant services

The owner provides no significant servies as he is 4000 miles away from the property. So materrial participation it is on Schedule E. I noiw realize how lame this question was. Just like a K-1 activity on E can be material or passive so can a traditional rental. Duh!