Taking full rental loss on short term rental

[michelleandbrett]

My MAGI is $117,000 and I have over $25,000 in rental loss. TT is currently reducing my $25,000 deduction by $8500 (50% of the amount over 100k). I was reading on a forum that if the average stay in my property is under 7 nights, i.e. this is a short-term rental, and I should be able to deduct all my loss, regardless of MAGI. Is this correct? If so, how is this accomplished? 

[DavidD66]

If your rental property is treated as a business and reported on Schedule C (Self-Employment), then your loss is not subject to the income limitations and phase out applied to rental property reported on Schedule E.  Also, if your rental is reported on Schedule C and has a profit, you will are subject to self-employment tax.

IRS section 469 defines six exceptions to what counts as rental activity.  Those exceptions include:

• The average stay lasts seven days or less.
• The average stay is 30 days or less, and the owner provides services equivalent to those offered by a hotel, such as daily housekeeping, meal services, and transportation.
• Owners provide “extraordinary personal services” to renters. Think luxury rentals that include a personal chef or private tours.

There are differing opinions about what is required to report a short term rental property as a business on Schedule C.   One view is that you only have to have to have average stays of six days or less.  Others say in addition to average stay of six days or less, you have to provide substantial services.

If you want to report your rental on Schedule C, you will have to delete your "rental" and start a business in TurboTax.  

[M-MTax]

Section 469 is strictly applicable to passive losses and does not have any other applicability. I'm going bring @AmeliesUncle into this because there is the issue of material participation with an average rental period of 7 days or less.

Note that the IRS instructions for Schedule E are fairly clear (and make no mention of the average rental period):

See https://www.irs.gov/instructions/i1040se#en_US_2025_publink1000152097

Generally, rental real estate activity is reported on Schedule E even if it is also a trade or business activity; however, if you provided significant services to the renter, such as maid service, report the rental activity on Schedule C, not on Schedule E. Significant services do not include the furnishing of heat and light, cleaning of public areas, trash collection, or similar services.

If you were a real estate dealer, include only the rent received from real estate (including personal property leased with this real estate) you held for the primary purpose of renting to produce income. Do not use Schedule E to report income and expenses from rentals of real estate you held for sale to customers in the ordinary course of your business as a real estate dealer. Instead, use Schedule C for those rentals.

[AmeliesUncle]

As M-MTax said, the number of days has nothing to do with Schedule E versus Schedule C.  That is strictly based on if "services" are provided to the tenants.

In answer to the question, if it is short-term rental on Schedule E and you Materially Participate, you are correct it is non-passive.  Unfortunately, the step-by-step interview is NOT set up for that.  The only way to do it is to use the Desktop/downloaded version of TurboTax and go to the "Forms" to get to the "Schedule E Wks" and mark the "Other Passive Exceptions" box.  Or use another brand software that is set up for this fairly common scenario.