Thanks, everyone for your help with this.

My head is hurting. 🙂

TaxGuyBill, thanks for the Pub. 925 link. Based on the Rental Activities Exceptions #1, if the average period of customer use of the property is 7 days or less, then it isn't a rental activity.

This appears to support Lisa's position that it isn't reported on Sch. E but on Sch. C. Everything I have read says that it still goes on Sch. E because no substantial services are provided. Also, the activity is considered nonpassive and the full loss is deductible.

Also, the TPs don't use the property for personal use and they don't meet the material participation test but they do meet the active participation test.

So, if I check the "other passive exceptions" box and not the material participation box but I check the active participation box, will this be the correct treatment? Does the rental qualify for deduction of the full loss on Sch. E?

Boy, this has turned to confusing.

Thanks for your help.