confusion about if self employment tax applies for short term Airbnb hosts

[tuxedorose]

I am sure others in the same situation as me and want confirmation that we do NOT have to pay SE tax.

- we own a vacation rental unit / condo and it is in a LLC with 2 members. it is in Florida and we live in California

-we rent it out most of the year , usually for 7 days or less

-we host it via  Airbnb and manage the bookings ourselves remotely and pay a cleaner after each guest leaves

-we may occasionally have a year where there is a NET loss and therefore want to be able to take that loss against our 'earned income' on our individual tax returns

Q :  should we say we that are ACTIVE GENERAL  (not passive)  partners  in the LLC and that we materially participate in the management ?

Q:  do we risk being asked to pay Self Employment Tax ?

Q: for any year that is a net loss on the Airbnb, can we deduct that against our earned income on our individual returns ?

@taxmodern 

[taxmodern]

-we rent it out most of the year , usually for 7 days or less

Does that mean you also use it personally other times during the year?  If the number of days you use it personally (or family/friends or anyone staying for less that fair market rent), if that number of days is greater than 14 days, and also exceeds 10% of the fair rental days, then your deductions are limited to the amount of income, and the other rules about it being non passive because it's a short term rental no longer apply at all. 

Before I try to answer the other questions, are we talking about an LLC that you are filing as a partnership on a partnership tax return (a 1065 return)?  Or are you just filing a Schedule E on your personal tax return (and are the 2 members of the LLC spouses)?

[tuxedorose]

hello @taxmodern . thank you for answering our questions.

1. yes we do use it for personal use, usually less than 14 days per year but never more than 10% of the actual rental days via Airbnb. 

2. my spouse (domestic partner actually ...we file separate individual returns) are both members of the LLC. we  file a 1065 tax return each year.

•      a) the 1065 is almost completely blank. the only real numbers are put on form 8825 where we list gross rents and all the expenses.
•     b) the only numbers put on the 1065 is the LLC lic fee I put on line 14 and  the net rental  income/loss from 8825 that i put on line 2 of the sch K
•    c) then i create 2 K1s for each of us 2 members that we then will use on our individual tax returns (for net income or loss) .  I dont pay any tax with the 1065

 3. my main quesitons are 1. are we filing the forms properly and 2. if we say we materially participate and are general partners (so that we can deduct net rental loss against earned income on our individual returns), are we at any risk of owing self employment tax ?

[taxmodern]

1. are we filing the forms properly 

From how you have described it, yes that sounds correct to me.

2. if we say we materially participate and are general partners (so that we can deduct net rental loss against earned income on our individual returns), are we at any risk of owing self employment tax ?

No.  Rental income isn't subject to self-employment tax even if you materially participate, and/or it's a short-term rental.  It would be only if you provide "substantial services", which means services *during* guests' stays, such as daily cleanings during their stay like a hotel (not just between guests), entertainment, or meals. But that's rare and wouldn't apply in your case.    If you're putting the rental income on form 8825 (the partnership equivalent of Schedule E), then it is considered just rental income and it won't be subject to self-employment tax. 

Q: for any year that is a net loss on the Airbnb, can we deduct that against our earned income on our individual returns ?

Regarding this question, usually the K-1 rental loss from your partnership won't be able to offset your earned income.  An exception is if you qualify for the "short-term rental loophole" as it's called.  For that, first the average stay for the year must be 7 days or less.  And then second, you and/or your spouse must have logged enough hours to qualify for material participation. That means you must spend at least 100 hours/year on it if no one spends more time on it than you (otherwise the requirement is that they spend at least 500 hours/year on it). That is a lot of hours, and if they have a property manager they usually won't have enough hours to qualify, and it doesn't sound like you do in this situation.