Determine Passive Activity Loss Rental Property – Paul Gaulkin CPA

house with for rent signAn activity is a rental activity is during the year:

1. Tangible property held in connection with the activity is used by customers or is held for use by customers; and

2. Gross income attributable to the conduct of the activity represents amounts paid principally for the use of the property.

Generally speaking, any rental activity is a passive activity, without regard to material participation. This means that no matter the amount of hours you put into a rental activity, it is still considered a passive activity for tax purposes.

Passive Activity Exceptions

The following tests and examples are exceptions to rental activity status. If any of the following tests are met, then the activity is not a rental activity. These tests include:

1. The average period of customer use for rental property is seven days or less.

2. The average period of customer use is 30 days or less, and significant personal services are provided by the owner in connection with making the property available for use by customers. Significant personal services include services performed by individuals.

3. Extraordinary personal services are provided by or on behalf of the owner in connection with making the property available for use by customers. Extraordinary services are services provided to customers o that use of the property is incidental to the receipt of such services.

4. The rental of the property is treated as incidental to non rental activity of the taxpayer.

5. The taxpayer customarily makes the property available during defined business hours for non exclusive use by various customers.

6. The taxpayer provides property for use in an activity conducted by a partnership, S corporation, or joint venture in which the taxpayer owns an interest, but the activity is not a rental activity.

In most cases, a normal rental property will not trigger any of these exclusions. However, it is important for a taxpayer to know that they exist and to be careful not to become subject to them.

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.


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