The IRS addressed the second misconception in Chief Counsel Advice 202151005, particularly concerning short-term rentals. The IRS clarified that short-term rental activities where the average stay is seven days or less are not automatically passive rental activities under §469. Instead, they are considered passive only if the taxpayer fails to materially participate. Therefore, most short-term rental activities, like Airbnb and VRBO rentals, are nonpassive.
There is often confusion among tax professionals about when short-term rental income is subject to self-employment tax and reported on Schedule C instead of Schedule E. The general rule is that rental income is exempt from self-employment tax. However, if services are provided alongside the rental, the income may be subject to self-employment tax, regardless of the average length of stay.
basically the partnership is going to have to report it as business/income loss. if it reports on line 2 and you report on line1, you can expect an inquiry form the iRS. Turbotax treats line 2 as passive for losses and npon passive for income
