see this article it provides info on what the IRS is looking at to determine if a taxpayer is a real estate pro.
https://www.inman.com/2013/04/26/how-the-irs-defines-real-estate-pro/
Finally, we are planning to set up her real estate LLC as an S-corp. Will this impact how the rental property management is deducted? this can be an extremely bad idea. in an LLC you can use the mortgage balance (non-recourse financing) to determine your basis to see if it there is sufficient basis to absorb losses. Mortgages and other debt except for the debt to the shareholder does not qualify to be added to their tax basis. for example, an S corporation buys a building for $100,000 the shareholder puts in $20,000 and gets a mortgage for $80,000. the property losses $30,000. the taxpayer can only deduct $20,000 of losses because the mortgage doesn't count. if the $80,000 was a personal loan from the shareholder that would count and $30,000 could be deducted. the downside . the S-Corp would have to pay the shareholder interest on the loan. there is also an issue as to whether the S-Corp would have to pay the shareholder a salary. most likely yes because she is performing services. finally Real Estate Professional applies to individuals. doubt whether an S-Corp would pass muster and thus she would not be for income tax purposes.
before doing a conversion to an S-Corp consult with a tax pro.
