Repost-When not a Rental

[Bees Knees]

But I can't find any reference in IRS Publication 527, Residential Rental Property, to support the idea that property rented for less than one week is not considered rental property, or that it is a not a "rental activity."

I'm not saying that the information in TTB is wrong. But I think it might be referring to the idea that short-term rentals are treated as a business activity that is similar to the operation of a hotel or motel.

If the business is structured and intended to provide only short-term occupancy, then I think it belongs on a Schedule C.

Information in TTB, page 7-12 is taken from Reg. §1.469-1T(e)(3) which says:

(ii) Exceptions. For purposes of this paragraph (e)(3), an activity
involving the use of tangible property is not a rental activity for a
taxable year if for such taxable year--
(A) The average period of customer use for such property is seven
days or less;

Of course, when you read the context of both TTB and the above cited regulation, it is in the context of determining whether an activity is automatically considered a passive activity because it is a rental. All rental activities are passive activities, with the above cited exceptions.

Thus, when saying it is not a rental activity in the regs and page 7-12 in TTB, it means it is not a rental activity that automatically is a passive activity. It may still be a rental activity for purposes of reporting it on Schedule E, or it may be a rental activity reported on Schedule C. That issue is not the context of page 7-12. The issue on page 7-12 is whether or not it is considered a passive activity.

[Kram BergGold]

Thanks everyone

I really needed to bounce this around and your comments have helped me understand the theory and practical application. My client has only offered 1 day to 1 week rentals of a fully furnished vacation house with cleanings after every rental. In 2008 he may even start serving breakfast. So I am going to go with Schedule C.

[Koss]

One week or less?

Mark, you may be misreading the reference in TTB, or misinterpreting the context.

I've been sick the last few days, out of the office, and I don't have a copy of The Tax Book at home.

But I can't find any reference in IRS Publication 527, Residential Rental Property, to support the idea that property rented for less than one week is not considered rental property, or that it is a not a "rental activity."

I'm not saying that the information in TTB is wrong. But I think it might be referring to the idea that short-term rentals are treated as a business activity that is similar to the operation of a hotel or motel.

If the business is structured and intended to provide only short-term occupancy, then I think it belongs on a Schedule C.

The key here is to clearly distinguish between

(i) an apartment building that offers month-to-month leases for furnished apartments, and

(ii) an "extended stay" hotel, which offers "weekly rates," where all of the units have a small kitchen

The apartment building is a rental activity that belongs on Schedule E. The extended stay hotel is a hotel that belongs on Schedule C.

If your client's property is offered for rent for periods of longer than one week, then the section of TTB you are referring to may not be applicable.

I agree that based on the number of hours and the degree of involvement, the activity is probably not passive. But it still feels like it is a rental activity, and it belongs on Schedule E. It just won't be subject to the passive activity loss limitations.

See Pub. 527, at the very bottom of page 5. There is a formal definition of the term dwelling unit that I think may be the basis for the "one week or less" period. Maybe there's a revenue ruling that addresses this somewhere. I don't think the folks at TTB just made it up. But I really think it has more to do with how the unit is offered for rent, as opposed to the length of time it is actually rented by an individual tenant.

If your unit is only offered for rent for periods of one week at a time, then I think the IRS wants to you treat your business as a hotel, even if one individual tenant lives in the unit for six weeks, by "renewing" his one week term six times.

But if your client intends to offer the house for rent for longer periods, and that is the custom for seasonal rentals in the area, and he only rented it on a weekly basis because that's all he could get, since the house wasn't ready at the beginning of the season, then I don't think it's a "short-term occupancy."

BMK

[travis bickle]

this is a little different

When a house is rented for periods of one week or less it is not considered a rental activity (TTB p 7-12). If the owner meets the material participation rules it is not passive (TTB 7-12 and 7-11). So let's keep it simple. My client placed a house into service on Aug 1. Rented it for 3 one week periods. Then the season ended and it was not rented for the rest of the year. During Sept-Dec he spent hundreds of hours fixing the place up.
There was no personal use of the property. Where does one report this non rental, non passive activity, Schedule E or Schedule C?

. . . than your original post a bit earlier Kram.

in the other post you wrote that the client did use the facility for more than 14 days, here you say there is no personal use. two different scenarios.

here is what tax topic 415 says about mixed use facilities (this is what geekgirl responded):
"If you use the dwelling unit for both rental and personal purposes, you generally must divide your total expenses between the rental use and the personal use based on the number of days used for each purpose. However, you will not be able to deduct your rental expense in excess of your gross rental income. If you itemize your deductions on Form 1040, Schedule A, you may still be able to deduct mortgage interest, property taxes, and casualty losses on that schedule."

if there is no mixed use, there is nothing wrong with reporting everything on schedule e.

[BOB W]

When a house is rented for periods of one week or less it is not considered a rental activity (TTB p 7-12). If the owner meets the material participation rules it is not passive (TTB 7-12 and 7-11). So let's keep it simple. My client placed a house into service on Aug 1. Rented it for 3 one week periods. Then the season ended and it was not rented for the rest of the year. During Sept-Dec he spent hundreds of hours fixing the place up.
There was no personal use of the property. Where does one report this non rental, non passive activity, Schedule E or Schedule C?

Schedule C is only used if "Services" were provided for the renter.

[Kram BergGold]

When a house is rented for periods of one week or less it is not considered a rental activity (TTB p 7-12). If the owner meets the material participation rules it is not passive (TTB 7-12 and 7-11). So let's keep it simple. My client placed a house into service on Aug 1. Rented it for 3 one week periods. Then the season ended and it was not rented for the rest of the year. During Sept-Dec he spent hundreds of hours fixing the place up.
There was no personal use of the property. Where does one report this non rental, non passive activity, Schedule E or Schedule C?