Short term rental as an active activity

[Annie Balagot]

Hi,

a little confused about the short term rental loophole. Seems i can use my paper losses on my STR against active income if my avg stays are less than 7 days and I pass the materially participation test. Here's my question: I purchased a STR property but it was under and existing LT lease (though the leasee was doing STR arbitrage and renting it out). We bought it in March but once the lease ends in July, we will manage ourselves. For the materiality test and avg days test, does the fact that it was rented long term and had other property managers negate my ability to claim it as active income/loss. I'm guessing maybe I can separate out the period of LTR and STR for income but does that also pertain to the tests? hope that made sense. Would love to be able to take advantage of this loophole this year.

[Greg O'Brien]

@Bruce Woodruff All - STRs do not go on Sch C UNLESS you are providing hotel like services. See Jan 2022 IRS CCA memo which confirms this under “substantial services”.

Substantial Services and Material Participation are different things.

If you structure properly, your STR can be nonpassive on Sch E.

We specialize in STRs and u fortunately, the vast majority of accountants screw this up, costing investors serious $.

Point them to the 469 Regs and January’s CCA memo.