I don't see a place in TurboTax online to enter the average rental period, so it's not allowing me to offset other income with my rental loss.
There is no such place to enter the average period of rental.
If you provide substantial services that are primarily for your tenant's convenience, then you would report your income and expenses on Schedule C rather than Schedule E.
For the OP: You need to go into "Forms Mode", go to the Schedule E Worksheet, and check the "Other Passive Exceptions" box.
And just to clarify for the OP and any other readers what Tageam and I are talking about:
The Regulations for PASSIVE LOSSES say that a rental for less than 7 days or less is not considered a "Passive Activity". But that is under the rules for PASSIVE LOSSES. So it is not a "rental activity" for purposes of Passive Losses.
As Tagteam and I agree, because no services are provided, it still properly goes on Schedule E. It IS still a rental, but just not a rental for purposes of the Passive Loss rules.
Schedule C is not appropriate because it is not subject to Self Employment Tax. It IS still a rental, and the rules for Self Employment Tax don't apply to rental (unless services are provided).
There is no such place to enter the average period of rental.
If you provide substantial services that are primarily for your tenant's convenience, then you would report your income and expenses on Schedule C rather than Schedule E.
When going through the introductory part of the rental section, it should ask you a question about what type of rental it is (Single Family, Multi Family, Vacation/Short-Term Term, etc.). I suspect that if you check the Vacation/Short-Term, it will handle things properly.
Only check vacation/short term if you or your family use the property during the year when it is not otherwise rented.
Are you sure? I don't think that is right. The "short term" rental should adjust the passive rules, regardless if it is used for personal use or not.
@AmeliesUncle wrote:
Are you sure? I don't think that is right. The "short term" rental should adjust the passive rules, regardless if it is used for personal use or not.
I believe the Vacation/Short-term selection merely changes the property type on Schedule E in the program.
The fair rental value days and personal days control the passive exception.
It SHOULD change the passive rules. For example, one of the other choices is Self-Rental, and selecting that DOES affect how the program treats the passive rules. I would THINK that short-term would do the same thing (but I have not tested it).
@AmeliesUncle wrote:
It SHOULD change the passive rules. For example, one of the other choices is Self-Rental, and selecting that DOES affect how the program treats the passive rules.
Why? Should the rules be changed automatically merely because of the selection as a vacation rental? What if there are zero personal use days for any one year of ownership or for every year of ownership thus far?
The self-rental selection is somewhat different than the vacation property type as the income is always going to be nonpassive for the former as long as the property is a "self-rental".
Short-term rentals are non-passive, right?
So if selecting that does not change the passive rules, how do you tell TurboTax it should be non-passive (besides going into Forms Mode and checking the non-passive box)? Is there a question about it in the interview? That is what the OP is asking about.
I did just test it out and you are right, changing that to short-term does not change the passive rules.
But that still leaves the OP hanging ... how to do you tell the program it is non-passive (due to short-term rentals), without going into Forms Mode?
@AmeliesUncle wrote:
Short-term rentals are non-passive, right?
I thought we were way past this argument - Schedule E or Schedule C.
What would be considered "short-term" (in Florida, rental periods of six months or less for residential real estate are considered short-term)?
Are we referring to the 7-day and 30-day rules? So, for example, if I rent my beach condo for 30 or fewer days on average but without providing significant personal services the income is nonpassive?
I am trying to get the OP's question answered. The OP said average rental is less than 7 days, and no services.
No services means Schedule E. But less than 7 days (and Material Participation) means it is non-passive, right?
As the OP asked, HOW do you tell that to TurboTax (without going into Forms Mode).
@AmeliesUncle wrote:
I am trying to get the OP's question answered. The OP said average rental is less than 7 days, and no services.
No services means Schedule E. But less than 7 days (and Material Participation) means it is non-passive, right?
As the OP asked, HOW do you tell that to TurboTax (without going into Forms Mode).
You are correct; you need Forms Mode to make that particular selection.
However, do not blame the TurboTax developers (or legal) because they are most likely just reading the regs and applying them literally (broadly or overbroadly, if you prefer).
The relevant reg states that rental periods of less than seven days are not treated as rental activities and, hence, get Schedule C treatment (i.e., Schedule E is used to report income or loss from rental real estate, et al).
Again, we have had this discussion before about this position, and I agree with your position, but there are many others who diverge. On their side, the reg could simply have stated that the activity is nonpassive but, rather, the reg states it is not even a rental activity (and if it is not a rental activity, how could the correct treatment be to report it on Schedule E?).
For the OP: You need to go into "Forms Mode", go to the Schedule E Worksheet, and check the "Other Passive Exceptions" box.
And just to clarify for the OP and any other readers what Tageam and I are talking about:
The Regulations for PASSIVE LOSSES say that a rental for less than 7 days or less is not considered a "Passive Activity". But that is under the rules for PASSIVE LOSSES. So it is not a "rental activity" for purposes of Passive Losses.
As Tagteam and I agree, because no services are provided, it still properly goes on Schedule E. It IS still a rental, but just not a rental for purposes of the Passive Loss rules.
Schedule C is not appropriate because it is not subject to Self Employment Tax. It IS still a rental, and the rules for Self Employment Tax don't apply to rental (unless services are provided).
@Anonymous_ - you said "The relevant reg states that rental periods of less than seven days are not treated as rental activities and, hence, get Schedule C treatment (i.e., Schedule E is used to report income or loss from rental real estate, et al)."
The instructions for Form 8582 (Passive Activity Loss Limitations) state that if the activity meets any of the 5 exceptions listed, it's not a rental activity (for the purposes of Passive Losses). Renting for an average period of customer use of 7 days or less is one of the 5 exceptions. SO, then Form 8582 states that you must determine if your rental of the property is a trade or business activity, which in my case is Yes, then you must determine if you materially participated, which again is Yes in my case. Form 8582 Instructions then state "If the activity is a trade or business activity in which you did materially participate, report any income or loss from the activity on the forms or schedules normally used". This then takes us back to Pub 527, which states "If you rent buildings, rooms, or apartments, and provide BASIC services such as heat and light, trash collection, etc., you normally report your rental income on Schedule E, Part I".
So I think that is an additional piece of written evidence to justify your position and @AmeliesUncle's position in the next post that this activity gets reported on Schedule E, not Schedule C.
Thank you for the screen shot, this is very helpful. I had started this year using TurboTax Online, which doesn't have Forms mode, so I will go back to using the Desktop version so I can access this checkbox.
Thank you very much to both @Anonymous_ and @AmeliesUncle, you were both extremely helpful. Your position matches what my conclusion was after many hours or reading the regs.
@ericjford wrote:So I think that is an additional piece of written evidence to justify your position and @AmeliesUncle's position in the next post that this activity gets reported on Schedule E, not Schedule C.
Yes, @ericjford, we can agree on that. Further, the fact that the 7-day and 30-day "rules" appear in the Section 469 regs is relevant since that section specifically addresses passive activity losses.
Also, Section 469 basically defines "rental activity" as any activity where payments are principally for the use of tangible property [emphasis added}.
Has this since been addressed or do we still need to use "forms mode" to designate on Schedule E that a short-term rental property is non-passive?
@EricUT03 wrote:
Has this since been addressed or do we still need to use "forms mode" to designate on Schedule E that a short-term rental property is non-passive?
The program will automatically recognize that that scenario as nonpassive.
Which program will automatically recognize the scenario as non passive? I’m using TurboTax online, and anything I enter on Schedule E is being treated as passive by TurboTax and the system will not apply my losses to my W2 income even though it is a short-term rental property that I materially participate in. One support person instructed me to put the income and expenses on Schedule C if I want to deduct the losses, but I don’t think it belongs on Schedule C.
I apologize because I misstated the tax treatment (or it was misleading).
The short-term rentals I was referring to contemplated that the rental was being used as a residence, per Section 280A.
In your case, assuming you are not using the property as a residence, you need to indicate that you materially participated as a real estate professional. Otherwise, any loss would be passive.