Cabin rental, less than 7 day average stay, schedule E or C?

Couple of threads with some differing opinions and discussion. Consider the following scenario: Family owns mountain cabin that is rented exclusively and not for personal use. The average rental period is less than 7 days. The family materially participates in the maintenance, resupplying, renting and servicing of the cabin (not a condo maintained by local staff). As I read the regulations, the less than 7 day average rental determines this is not a "rental activity.". After determining this is not a rental activity, the next step is to determine if this is a trade or business and if the family materially participated in that business. Lets assume it is a trade/business and the family passes the material participation test (say 100hrs and no one performs more work). Does this mean the activity should be reported on schedule E? Even if we are on E at this point, the cabin will lose $ each year but is presumed to be profitable based on the appreciation of the asset over the life of the business (once cabin is sold). Can annual loses be deducted against other active income? Will the consecutive loses raise a tone of red flags?

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Reply to
dave
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No. Schedule C. You've already classified it out of "rental" status.

Appreciation of the assets (and future, potential capital gain) used in a repetitive-loss activity is one of the points in FAVOR of the taxpayer used in not classifying the activity as "not engaged in for profit" per IRC 183.

Reply to
D. Stussy

I found this resource on the web which describes the answer. Looks like schedule E, but can deduct against other income if materially participate. Here is the link and a little cut and paste text

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Start Cut and Paste Strategy #6: If it's impossible to extend your average rental period, you can try to "materially participate" in the "business" of renting your vacation home. If you can meet the material participation standard, your vacation home rental activity is considered non-passive and you can currently deduct your Schedule E losses against taxable income from any source (salary, Schedule C income, capital gains, etc.). The three easiest ways to meet the material participation standard are: By doing substantially all the work related to the property. By spending over 100 hours dealing with the property and making sure no other person spends more time than you. By spending over 500 hours dealing with the property. In attempting to pass these tests, you can count both your time and your spouse's time. However, if you employ a property management company, it's very unlikely you'll be able to clear any of these hurdles. End Cut and Paste

Reply to
dave

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