My wife and I have an LLC/Partnership that owns a sailboat. The boat rentals are scheduled by a charter management company. We actively and materially participate in this rental property through promotion, equipment purchases, on-site and sea trial inspections, etc. Our expenses outside the management company activity are listed as ordinary business loss on the partnership K-1 and the charter income from the management company is reported as "Other Rental Income" on K-1, line 3 and Form 1065, Schedule K, line 3a. When the K-1 information is transferred to our personal income return, the charter income on K-1, line 3 shows up as passive on Schedule E, line 28 even though our participation qualifies as active and material. This first year of business, our expenses exceed the charter income and there is a net loss. Do we need to show the income from the management company as non-passive and, if so, how do we do that?
