It's a lavender farm. No animals. The house will eventually be rented out. There's an old barn on the property where they're storing equipment. The only expenses in 2022 was the interest on the loan and insurance. IRC266 mentions carrying the interest but nothing about insurance. I agree with you, it doesn't sound like they did enough to consider it an up-and-running business in 2022.

One other piece of information that I was just made aware of is that the property is titled under the LLC and the loan is under one of the partners names. The partners are husband and wife but file separately. The partner with the loan is already capped out on the $750,000 interest deduction on his 1040.