non-passive rental loss

[lllbby]

I'm a real estate professional and I materially participate in some of my properties but not all. For the properties that I materially participate in (short-term rental such as Airbnb and Vrbo), I'm going to take the rental loss as active loss from my total income. Am I able to take the rental loss from passively managed properties such as a long-term annual lease rentals from off my total income as well by combining all rental activities together or I can only take those losses as passive loss under the corresponding properties?

[Mike9241 · Accepted solution]

You can elect to treat all interests in rental real estate as one activity. Then since you are a REP,  you would be deemed to materially participate in all of them.  This requires filing an election with your timely filed return declaring that you are a qualifying taxpayer (REP) for the year and are making the election pursuant to iRC SEC 469(c)(7)(A). According to the IRS this does not affect whether or not you're a REP. It's only considered for determining  material participation in your rental real estate activities (CCA 201427016). This election is irrevocable unless there is a material change in your facts and circumstances. (for example yo fail to qualify as a REP)

[lllbby]

Thanks for your answers. If I e-file my tax return from turbotax, to file an election pursuant to iRC SEC 469(c)(7)(A), does it mean I have to mail the election to the IRS with my e-file confirmation page? Or is there a way to e-file the election together with my turn? Another question, if I fail to qualify as REP or for other reasons that I don't want to combine all interests in rental real estate as one activity in the next year, do I have to file anything in addition to regular tax return that treats the rental properties separately?

[Mike9241]

MAKING THE SEC. 469(c)(7)(A) ELECTION

A taxpayer makes the election by filing a statement with the taxpayer’s original income tax return for the tax year (Regs. Sec. 1.469-9(g)(3)). This statement should explicitly declare that the taxpayer is a qualifying taxpayer (i.e., the taxpayer meets the requirements to be a real estate professional) for the tax year and is making the election under Sec. 469(c)(7)(A). Once the election is made, it is binding for the tax year in which it is made and for all future years in which the taxpayer is a qualifying taxpayer, even if there are intervening years in which the taxpayer is not a qualifying taxpayer.

A taxpayer can revoke the Sec. 469(c)(7)(A) election only in the tax year in which “a material change in the taxpayer’s facts and circumstances occurs or in a subsequent year in which the facts and circumstances remain materially changed from those in the taxable year for which the election was made” (Regs. Sec. 1.469-9(g)(3)). To do so, the taxpayer must file a statement with the original income tax return for the year of revocation containing a declaration that the taxpayer is revoking the election under Sec. 469(c)(7)(A) and an explanation of the nature of the material change.

Turbotax is terrible when it comes to making certain elections - so yes you'll have to mail your return because there's no way to attach the statement to the electronic file. Turbotax doesn't have it, at least not in the version I'm using. 

deciding you no longer want to combine rental activities would not be a material change in your circumstances.