How do I identify that I have provided material participation in my short term rental

[legena.briest]

Why is my losses on my short term rental not counting against my income

[PatriciaV]

The material participation question appears at the beginning of the Rental Property interview. When you first begin the topic, look for the page "Let's see if you're a real estate professional." If you check both boxes (more than 750 hours and more than 50% of work-related time), the follow up questions will determine if the material participation box will be checked for each rental property.

Also, for your property to be eligible to offset active income, it must not be defined as a "rental activity" under Section 469. You meet this if:

• The average guest stay is 7 days or less.
• Alternatively: The average stay is 30 days or less AND you provide "significant personal services" (like daily cleaning or breakfast, similar to a hotel).

If you don't meet the short-term rental criteria above, you might fall back on the "Active Participation" rule, which allows a deduction of up to $25,000. However, this benefit starts to phase out if your Adjusted Gross Income (AGI) is over $100,000 and disappears entirely at $150,000.
 

[taxmodern]

TurboTax Online unfortunately still doesn't have a way to correctly report short-term rentals as non-passive, so you can't use TurboTax Online  if you have an STR with an average stay under 7 days with material participation.  But you can with the desktop version of TurboTax, but they don't make it easy.  You have to go into the forms mode on the Schedule E worksheet, then check the boxes "G - Other passive exceptions" and "D - Material Participation".  

Hopefully someday TurboTax will add a feature to correctly handle short-term rentals that are non-passive (the "STR loophole" or "STR tax strategy").  By the way, you do have to materially participate in the property, which means you have to either spend 100 hours/year on it if no one else spends more time on it than you do, or 500 hours/year if anyone spends more time on it than you do.

The other thing you have to be aware of with TurboTax is that it also doesn't correctly handle depreciation for short-term rentals.   If you have a short-term rental with an average stay of 30 days or less (note that this is a different standard than the 7 day test for it to be non-passive), then you can't use 27.5 year depreciation because it's considered non-residential, instead it must use a 39 year class.  So to handle that correctly in TurboTax, you have to instead choose the option for an "other asset" for the house, and then walk through the steps there to enter 39 years as the depreciation class. 

Hopefully eventually TurboTax will correctly handle short-term rentals, but for now it's a bit of a hassle to make it work correctly for STRs.

[AmeliesUncle]

---

@taxmodern wrote:

TurboTax Online unfortunately still doesn't have a way to correctly report short-term rentals as non-passive, so you can't use TurboTax Online  if you have an STR with an average stay under 7 days with material participation. 

---

FYI:  I haven't seen it in action, but I saw one response from an Intuit employee that implied they might have added it.  It said you need to select Vacation Home/Short Term Rental for the category (not single family home) and then it asks for the average rental period.

But that is ONLY based on one comment I've seen, so I have have misinterpreted it or that comment I read might be wrong.

[taxmodern]

I did see a comment maybe a couple weeks ago where someone said you could do that in TurboTax Online and it would handle it correctly now. So I went to TurboTax online and tried it, and there was no such option that I could find.  I suspect that answer that said that might have come from an AI-generated answer that was wasn't quite accurate.   So I'm pretty sure it still doesn't work that way. 

[AmeliesUncle]

Thanks for the update and for trying it!