JAD wrote:I'm pretty sure that if the average rental period is 7 days or less, then it's not a rental. The real estate professional issue is n/a and the election to aggregate is not available. The test is the regular material participation reg - 500 hours, etc. Agree? Disagree?
CornerstoneCPA wrote:I just went through this with a client and we both concluded it was not worth aggregating. While he absolutely exceeds 750 hours on two properties (he handles all repairs, inspections, guest bookings, cutting of firewood, vendors, etc.), there were too many other downsides to it on top of the fact he has a six figure W2 job, which varies in hours from 5 per week to 50+.
ii)such taxpayer performs more than 750 hours of services during the taxable year in real property trades or businesses in which the taxpayer materially participates.
Seaside CPA wrote:Is the average rental period 7 days or less (most AirBNB's are)? If so, and taxpayer materially participates in each one (which could be spending at least 100 hours and more hours than any one else), I would not try to meet the real estate professional test. If you go the RE professional route, sounds like you are going to have to make the aggregation election, which I try to stay away from if possible.
StephenLNelson wrote:Seaside CPA wrote:Is the average rental period 7 days or less (most AirBNB's are)? If so, and taxpayer materially participates in each one (which could be spending at least 100 hours and more hours than any one else), I would not try to meet the real estate professional test. If you go the RE professional route, sounds like you are going to have to make the aggregation election, which I try to stay away from if possible.
OK, I think if it's a STR situation--so average rental interval of 7 days or less--it's by definition NOT rental of tangible property real estate. That means you just need to meet one of the material participation rules like the one you mention.
But I think you might need or want to group your STR properties to do that. Grouping AirBNBs would surely be acceptable.
CaptCook wrote:
Agreed with above that reaching material participation is probably easier than you might think, but the problem with the STR situation is that activities spent on STRs aren't considered in qualifying for RE professional status.
KoiCPA wrote:I don't think the period of rental matters for RE professional. A "real estate trade" includes things that are not rental, such as real estate agents and home builders. I've never seen an argument that short term rentals are not real estate.
To quote Sec 469:
(C)Real property trade or business
For purposes of this paragraph, the term “real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business.
KoiCPA wrote:I've never seen an argument that short term rentals are not real estate.
JAD wrote:But these are not rental activities. They are trade/business activities.
At a rental period of <7 days, these align with hotel activities rather than rental real estate. That's why the hours won't count toward the RE Professional test.
Jeff-Ohio wrote:Sounds like JAD and Capt aren’t on the same page. JAD says she agrees with Nelson as to “defining him as a real estate professional.”
Capt say he agrees with JAD, but then Capt says:
At a rental period of <7 days, these align with hotel activities rather than rental real estate. That's why the hours won't count toward the RE Professional test.
I’m pretty confident Stephen and JAD have it right. And in this particular case, of a guy who only holds rentals that rent for 7-days or less on average, the RE Pro thingy is moot (as JAD says). But that conclusion doesn’t mean those hours don’t count for determining RE Pro status. After all, operating short-term AirBNB’s is a real estate trade or business (although not a rental activity; note that being a realtor isn’t a rental activity either). This can have a lot of relevance for Joe Blow who is relying on hours from “7-days or less rentals” to meet the quantitative RE Pro tests, when Joe Blow owns other “rentals” that are not “7-days or less” rentals.
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