So I consulted with a CPA, and here is how my situation
stands:

My wife qualifies as a real estate professional.
I have 4 properties (numbers rounded for simplicity):

Property 1 has a gain of $10000
Property 2 has a loss of $9000
Property 3 has a gain of $500.

These are all on schedule E. Property 2 meets the "material
participation" test because we personally spent more than
100 hours doing repair work on it, which was more than
anyone else (a few hours for a plumber), and we didn't pay
anyone to manage it for us (we do all that ourselves).

Property 4 has a loss of $8000. This goes on schedule C
because the average rental period is less than 7 days,
making it a business.

Here is my problem: We don't meet the "material
participation" requirement for property 4, which means I
need to check "No" on line G of schedule C.

Unfortunately, my tax software (TaxAct Deluxe) does not
allow me to check "No" on this line, and the professional
version doesn't either. So now I have to figure this out by
hand and mail in a return, instead of e-filing (or get
another tax program).

Here is how I think it should go:

Since the property 4 business is a loss, and is a passive
activity, this gets entered on line 3b of form 8582.

Property 1 + 2 + 4 add up to a gain of (10000 + 500 - 8000)
= 2500; since property 3 is material participation, all of
the loss is deductible, giving me (2500 - 9000) = -6500,
which goes on 1040 line 17. It is not subject to the
phase-out of passive deductions due to income > $100000.

Does this make sense?

Or should my wife's schedule C and the property 4 schedule C
be combined onto line 12 on 1040, even though the property 4
schedule C is passive?

For my wife's SE calculation, do I subtract 1/2 of the loss
from property 4 from her RE professional schedule C? My tax
program did this, but it thinks the property 4 schedule C
meets the material participation test.

Thanks.

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way222[at]gmail.com wrote:

- quote -

I am in this exact (almost) situation, except in my case the
condo has no cooking facilities, so isn't a "dwelling unit".

But the question is, if you are not in a community property
state is this a deemed partnership bewteen husband and wife,
and can't go on wife's Sked C?

scott s.

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"Kreig Mitchell" <kreigmitch...[at]hotmail.com> wrote:

- quote -

Like most rentals, it's unlikely to show a profit after
depreciation for at least several years, maybe ever. In
fact, for 2006 this property had zero income because it
wasn't on the market until December, and not many people go
to the beach in December.

Personal use for 2006 was zero, personal use for 2007 will
most likely also be zero.

For a regular house, it's a no-brainer, but that 7-day
average rental thing, along with very confusing material
participation, active participation, and real estate
professional rules, have left me unsure about what to do.

My best guess right now is that it goes on schedule E, but
it is an "Other Passive Activity" (line 3 on part 1 of
8582), which hoses me tax-wise a bit. I'd love to get it on
my wife's Schedule C (she is a full time RE agent (1099
Misc) who also manages all of our rentals; that would really
help me.

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way...[at]gmail.com wrote:

- quote -

You will understand the transaction better if you view your
property as a "hotel," because that is what you might be
deemed to be operating. In that case you are talking about
a business, not an investment. The tax consequences will
hinge on whether you earned a profit or incurred a loss (and
what the average rental period and/or total personal use
period was). Your tax accountant should be able to walk
you though the mechanics.

Kreig Mitchell
www.irstaxtrouble.com
www.irstaxtrouble.com/blog.htm

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way...[at]gmail.com wrote:

- quote -

First, use Publication 527, Residential Rental Property, to
determine how to report your rental activity, not
Publication 925, Passive Activity and At-Risk Rules. The
latter publication will help you determine when a loss on
the activity may be deducted.

Second, the rental of your condo is, indeed, reported on
Schedule E.

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My wife and I bought a condo as an investment in a resort
area. We put it in a vacation rental program, where it is
rented out for periods of typically a week or less. While
we make all the decisions about furnishing, maintaining,
participating in the condo association, etc., the rental
company finds the renters, collects the rents and sends it
to us, and takes a commission from the rent as their
payment.

Pub. 925 says "Your activity is not a rental activity if any
of the following apply: The average period of customer use
of the property is 7 days or less."

We will certainly meet this test.

Is this "not a rental activity" just for form 8582? Do I
not use sched E for this?

I'm uncertain how to do this. Any advice would be
appreciated.

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