Real Estate Professional with Self Rental

[jacob@JZGCPA.com]

Hello All!

I would like your thoughts on the following:

Facts:

1. Real Estate Professionals' rental activities, in which they materially participate, are not considered Passive Activities
2. Real Estate Professionals may elect to treat all interests in rental real estate as a single activity
3. Self-Rental Rule: If a taxpayer rents property to an activity in which the taxpayer materially participates, any net rental income for the year is treat-ed as nonpassive income, while any loss is treated as passive.

Assumptions:

1. A taxpayer is and has been considered a Real Estate Professional for several years (including the current year)
2. They have in the past and intend to currently elect to treat all rental real estate as a single activity
3. They have several disregarded entities (LLCs) that own and rent out retail buildings to restaurants, salons, etc.
4. They have another disregarded entity (LLC) that owns and has rented out a residential building (Single Family Home)
5. They completely remodeled the residential building and subsequently, made it their primary residence
6. They pay "rent" to the disregarded entity each month - (pays entity, entity pays mortgage, utilities, etc.)
7. The remodeling has provided for depreciation that is far in excess of the rents being paid
8. The taxpayer wants to use the Loss from the Self-Rental to offset taxable income from the other Rental Activities

Hypothesis:

• Since the taxpayer is a qualified Real Estate Professional, electing to treat ALL rental real estate as a single activity, the apparent "Self-Rental" loss will now be grouped with, and offsetting, all other rental income as non-passive.

Do you all agree or disagree?