Is this a rental?

[natiro]

Client leases apartments in her name and then sublets the apartments to executives on a temporary basis, often until they find a permanent place to live, or perhaps while in town for a temporary job. The rentals are almost always longer than 30 days. Some last for 3-4 months. Some last for just 1 month. My client furnishes the apartments and collects the rents. She doesn't provide any other services although she sometimes assists in finding cleaning services for the clients.

Would this be considered a rental activity reportable on Sch E and subject to passive loss rules?

Just curious how others would report this.

[Jesse]

I would look into the rules for a real estate professional subject to the significant participation rules.

[solomon]

Rental

Passive. Unlikely a RE Pro - requires material participation and more than 750 hours personal services.

[Snaggletooth]

More Info

...need more info. How's that for a "safe" answer?

How "passive" is this? Does this client work or do anything else for a living? How much time does this activity take? Does it approach Solomon's 750 hours? (That's 15 hours per week or thereabouts). If it's anywhere near that long, I would say this is a Schedule C.

What about profit motive? Did your client get "stuck" with a lease and is simply trying to reduce losses, or was this lease/sublease scheme something entered into from the start? If there is a profit, no questions obviously. But if a loss, one of the arguments, capital appreciation, cannot be used because there is no ownership.

I would also think Schedule E treatment is in jeopardy by virtue of not really owning the property. Filling out the Schedule E would be strange because there would be some rather obvious omissions, such as depreciation and mortgage interest. The largest expense would be "rent" itself. But I can't cite any authoritative references for this, so I hope some other knowledgeable person will post.

[Kram BergGold]

Rental

It is a rental activity. Whether it is active or passive rental you need to determine. I read many years ago that when renting, rented property you could not not show a loss. The rent received less the rent paid and other expenses could not be lowered past zero. Hope this helps!

[Jesse]

Facts and Circumstances

Depends on the circumstances again, how many clients and how much time involved in furnishing the apartments, checking up on the rentals after the tenant leaves, clean up and get ready for the next. Just seems that there is more time involved and maybe not unrealistic to hit 750 hours for the year.

If not a RE professional I would still look at the material participation rules. Sounds like this could very well be Schedule C.