Vacation rental(air bnb, etc) considered passive for tax purpose?

Question

I am wondering the type of tax treatment for vacation rentals such air bnb, vrbo etc. Are rooming houses considered the same as vacation rentals? Assuming there considered passive? Please share your experience and advice on tax advice. Thanks all!

Brandon Hall · Answer

@Jae Ham @Gabriel Esparza

It depends on how long you are renting these out for. If the average rental period is less than 7 days, then the activity is considered to be generating earned income subject to SE taxes. The IRS assumes hotel operations.

If the average rental period is >7 but <30 days, and you are not providing substantial services (i.e. maid services) then the activity is passive.

If the average rental period is >30 days, passive income.

Jae Ham · Answer

@Brandon hall bearer of bad news, lol. I was afraid of this, tax is killer. Welp, still worth it I think. Appreciate your info.

@blair russell I was hoping the same thing. Was going to have a property management firm to operate and me just as an investor type ownership.

Blair Russell · Answer

@Brandon Hall Oh yes, but I interpreted the rest of that as "even if you don't meet the rental period requirement you may still qualify on the material participation basis."

Brandon Hall · Answer

@Blair Russell unfortunately not. It's a common misconception. If the average rental period is less than seven days, it is viewed as a business and reported on Schedule C.

https://www.irs.gov/businesses/small-businesses-self-employed/passive-activity-loss-atg-exhibit-2-7-vacation-rentals-condos-b-bs-hotels-reg-1-469-1te3ii-and-reg-1-469-5ta

Blair Russell · Answer

@Brandon Hall This is dependent on your involvement though isn't it?

Gabriel Esparza · Answer

Also curious on this subject. Anyone knowledgeable on the subject willing to drop some words of wisdom?

Vacation rental(air bnb, etc) considered passive for tax purpose?

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