Resort rental

Collapse
X
 
  • Time
  • Show
Clear All
new posts
  • think2much
    Junior Member
    • Apr 2007
    • 21

    #1

    Resort rental

    Taxpayer owns a detached home in a resort development. The resort management handles all the rentals to the tourists. Taxpayer has no personal use of the property. He plans to move into it when he retires in a few years.

    1) I don't think he meets the active participation requirements for a loss. Correct?

    2) Is this rental home a residential or nonresidental property for depreciation? Residential rental property is defined as "any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis."
    Does a resort development fall into the "other establishment" category, and therefore make the taxpayer's rental home a nonresidential rental?
  • Roland Slugg
    Senior Member
    • Aug 2006
    • 1860

    #2
    A detached home is not a hotel. It is residential rental property.

    The issue of active participation is not clear in cases like this. I would treat the T/P as an active participant because he has control over the management company he engaged to tend to all the day-to-day tasks. This would be especially true if that management company contacts the owner (or would contact him if the need arose) regarding decisions about major repairs, long-term tenant approval, rental rates, etc. Some tax preparers, however, might treat a client such as yours as not actively participating.
    Roland Slugg
    "I do what I can."

    Comment

    • solomon
      Senior Member
      • Aug 2006
      • 1012

      #3
      Originally posted by think2much
      Taxpayer owns a detached home in a resort development. The resort management handles all the rentals to the tourists. Taxpayer has no personal use of the property. He plans to move into it when he retires in a few years.

      1) I don't think he meets the active participation requirements for a loss. Correct?

      2) Is this rental home a residential or nonresidental property for depreciation? Residential rental property is defined as "any real property that is a rental building or structure (including a mobile home) for which 80% or more of the gross rental income for the tax year is from dwelling units. It does not include a unit in a hotel, motel, inn, or other establishment where more than half of the units are used on a transient basis."
      Does a resort development fall into the "other establishment" category, and therefore make the taxpayer's rental home a nonresidential rental?
      In case you did not see the cite on the other board, see Reg. 1.469-1T(e)(3)(ii).

      Comment

      • think2much
        Junior Member
        • Apr 2007
        • 21

        #4
        Resort rental

        Solomon, thanks for pointing me to Reg. 1.469-1T(e)(3)(ii).

        See if I'm understanding it correctly:
        Assuming the only two relevant factors for this resort home are "length of stay" and "significant personal services", then
        1) If the average length of stay is 7 days or less, it is not a rental.
        2) If the average length of stay is between 8 and 30 days, and significant personal services are provided, it is not a rental. If no significant services are provided, it is a rental.

        If the activity passes the rental test, the property is residential (27.5 yrs). If it fails the rental test, it is a business and the property is nonresidential (39 yrs). It does not matter whether the property is a detached home or a unit in a multi-unit establishment. Correct?

        Comment

        • solomon
          Senior Member
          • Aug 2006
          • 1012

          #5
          Originally posted by think2much
          Solomon, thanks for pointing me to Reg. 1.469-1T(e)(3)(ii).

          See if I'm understanding it correctly:
          Assuming the only two relevant factors for this resort home are "length of stay" and "significant personal services", then
          1) If the average length of stay is 7 days or less, it is not a rental.
          2) If the average length of stay is between 8 and 30 days, and significant personal services are provided, it is not a rental. If no significant services are provided, it is a rental.

          If the activity passes the rental test, the property is residential (27.5 yrs). If it fails the rental test, it is a business and the property is nonresidential (39 yrs). It does not matter whether the property is a detached home or a unit in a multi-unit establishment. Correct?
          That is my understanding.

          Comment

          • dmj4
            Senior Member
            • Sep 2005
            • 209

            #6
            What if days of rental change?

            I have a rental that averages 7 days one year and 8 days the next year. It goes back and forth but remains in the range of 7-9. The very first year it qualified as a rental and I set it up that way and have continued to put it on Sch E each year.

            Thanks!

            Comment

            • Davc
              Senior Member
              • Dec 2006
              • 1088

              #7
              You're doing it wrong.

              Comment

              • BHoffman
                Senior Member
                • Feb 2008
                • 1768

                #8
                I'd like to do it right, and will risk asking a dumb question:

                How do you calculate the average period of customer use?

                Comment

                • Davc
                  Senior Member
                  • Dec 2006
                  • 1088

                  #9
                  Off the cuff I'd say:

                  total days rented/total times rented

                  Comment

                  • BHoffman
                    Senior Member
                    • Feb 2008
                    • 1768

                    #10
                    Thanks Dave - what is the correct way to handle this if the average use does fluctuate year to year from over 7 days to under 7 days?

                    Comment

                    • Chief
                      Senior Member
                      • Jun 2005
                      • 799

                      #11
                      Solomon

                      Originally posted by solomon
                      In case you did not see the cite on the other board, see Reg. 1.469-1T(e)(3)(ii).
                      Slomon welcome back. It is good to see you back on the Board.

                      Comment

                      • Davc
                        Senior Member
                        • Dec 2006
                        • 1088

                        #12
                        Originally posted by BHoffman
                        Thanks Dave - what is the correct way to handle this if the average use does fluctuate year to year from over 7 days to under 7 days?
                        When you change activity you change forms.

                        Comment

                        Working...