Investors & landlords

In reading the original question and follow-up responses, I will add the following comments:

• Qualifying as a short-term rental will require meticulous records to prevail if audited.  The IRS will want to see records of ALL stays and you will need to provide support that you meet the average of 7 days or less.  This can be tricky if some rentals exceed one week; some stay a couple of weeks, some stay one month.  These rentals, while generating rental income, will not be beneficial in determining that you meet the average of 7 days or less.
• If your property does meet the average of 7 days or less, then this rental falls outside of the typical rental real estate provisions under Section 469 and may not be a passive activity.  However, you will  need to meet the material participation rules, just like any other business.
• Keep in mind, that when attempting to qualify under the material participation rules, you need to take into account everyones time involved.
• As noted by @Mike9241 you need to be careful of the services being provided.  Many of these type of short-term rentals provide significant services and are reported on Schedule C; subject to SE Tax.
• If you are not required to report the activity on Schedule C, @Mike9241 provided the key to getting TT to handle this appropriately.  Since short-term rentals don't fall within the typical rental real estate provisions, checking "other" passive activity should solve the issue.
• If you fall within the short-term rental provisions, as noted above, this is not deemed a rental activity for the passive activity rules.  If you fail the material participation rules, you are not able to utilize the active participation rules for the $25,000 allowance.  This is due to the fact that this activity is deemed a trade or business.  In this case, you are only able to offset losses with other passive income.
• Finally, this area is highly scrutinized and you can't maintain too many records to support your position.