This taxpayer qualifies as a real estate professional. Thanks for attempting to help. I've contacted Proseries support and they are looking into the issue.

That was the VERY FIRST thing I asked you.  It would have made things MUCH easier if you had just answered that right away.

If they qualify as a Real Estate Professional, you need to check the Box that they are a Real Estate Professional.

That box is on the Federal Information Worksheet (the first page where you enter the name, address, etc. of the taxpayers).  It is down quite a ways with all of the other check-boxes.

:+1:

Language is so important here, I would say real estate income is always passive, and there are just a few circumstances - such as a real estate professional where the passive income is treated as non-passive.  What result are you trying to get out of your tax return that you are not getting?

As I stated in my original post, this qualifies as nonpassive. I'm aware of the difference and that rentals are typically passive. That doesn't apply to this taxpayer.

The result I'm trying to get is for it to show up in the correct spot on the Schedule E instead of incorrectly reporting in the passive column. My goal is for the return to truly be accurate and I've hit my limit with all these blasted proseries issues this year. Ugh.

Thanks in advance to anyone who can help me manipulate this software and report this accurately.

Is your Taxpayer a Limited Partner?
Passive/active/material is different from QBI.

No, general partner and material participation in the rental business. I'm not even looking at the QBI right now, just wanted to get the information flowing correctly on the return

If you tell us what makes it non-passive, we can tell you what to do.

He materially participates in the rental business. I apologize for not giving more information, but I am positive it is nonpassive income and am a CPA and been doing taxes for over 30 years. I just can't get the software to properly handle this. I believe it's most likely a glitch in the software. I have marked material participation and trade/business but it doesn't change the coding like it is supposed to.

Rental income is passive, even if you materially participate, even if you are a real estate professional.  When you say you want it to show up in the correct spot on the schedule E - Do you mean on page 2?  If you have a k-1 with box 2 rental income, that is going to be on page 1 of the schedule E no matter what boxes you check.

As the TaxMonkey pointed out, a rental is still passive even with Material Participation.

§469(c)(2) says "Except as provided in paragraph (7), [paragraph 7 is about Real Estate Professionals] the term “passive activity” includes any rental activity."
https://www.law.cornell.edu/uscode/text/26/469#c

It says ANY rental activity, which includes one that rises to the level of a Trade or Business and/or has Material Participation.

Isn't the main objective of real estate professional is to eliminate PAL limitiations? I have a huband and wife partnership and she is a RE professional, but he is not. However, my understanding is the spouse of a RE professional qualifes automaticall with the RE professional spouse. I noticed Lacerte will not allow the "non-RE professional" spouse's loss on the 1040 (due to income limitations) unless I check the box that he is a RE professional too. Anyone out there doing that on their "mixed marriage partnerships"?

These tax experts here are wrong and Turbo Tax fails to handle this situation.  They are failing to realize that there are several exceptions  Reg 1.469-1T(e)(3)(ii)  in particular if the income is from short term rentals.  If these exceptions are met then the activity is treated as business and not rental income.

* The average stay is 7 days or less

* The tax payer or family stays at residence 14 days or less

* The tax payer material participates - doesn't matter if they are real estate professional

Rules for Material Participates depends on the Entity but for LLC

-- All partners (General and Limited) are treated as Limited in regards to Passive Activity rules in most states and therefore, they would be limited to the passive activity rules with 3 exceptions.  These exceptions are:

(1) The tax payer works 500 hours or more in trade or business

(2) The tax payer materially participated in the activity in ay of 5 of prior 10 years

(3) The activity is a personal service and the tax payer materially participated in any 3 years prior.

I have the supporting documentation if needed but I found a great reference is the IRS Passive Activity Loss Audit Technique Guide (ATG)  that you can download from their site. It gives the instructions and decision trees for questions that auditors use to determine how to treat something.  This document provides not only the supporting law but also references to some court cases where these have been argued in court.

My issue is where do I treat this as non-passive.  Do I modify the K-1's and move the amounts from Box 2 to Box 1 or do I have TurboTax take the value in Box 2 and treat as nonpassive.  For now, Turbo Tax doesn't let me no matter what I do.

If anyone can help me figure out how to get TurboTax to handle this I would appreciate it.  When talking to them via support they were very nice but they admitted that they didn't understand these IRS rules and regulations and I was told to reach out to a CPA to have them do it.

@Bearly 

"These tax experts here are wrong and Turbo Tax fails to handle this situation."

Well, you might want to go to the Turbo Tax user community, then, to let them know about your issue and to get help with that program.

"If anyone can help me figure out how to get TurboTax to handle this"

Your log in here will also work there. Here is the link:

https://ttlc.intuit.com/community/discussions/discussion/03/302

Because right now, you are lost on the internet.

 I was told to reach out to a CPA to have them do it.

And you should take that advice.  

Short term rentals are a complicated area.  Have you addressed the issue of what services are provided?