Is a 100% owner of an S Corp which leases a house through AirB&B, makes all decisions and does all of the work involved running an active or passive busness?

Forum|Forum|3 years ago
August 24, 2022
2 replies
13 views

i've found info that states that circumstances of material involvement make this an active activity and it's even shown as "Active RE" at top of pg 2, section A of the K-1 worksheet. Yet it then goes on to suspend the loss in Section A.

ProSeries Professional

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T

TaxGuyBill

Level 15

In the world of taxes, "active" and "passive" are not opposites.

First, let's take a step back. Is this just renting out the property? Or does your client provide "services", such as maid service, meals, concierge services, etc.?

qbteachmt

Level 15

What does leasing a house have to do with anything here? Is that their operation?

An S Corp has one or more shareholders. They might work for the entity, which makes them shareholder-employees. Example:

An S Corp might be a property rental operation. They source the real estate from the owners, under lease agreements. Or, there is "leased" property from the owner, their own shareholder, as in self-storage. The Operations, then, as property manager, is a nonpassive operation. They do the work, hire others or contract for services and have to manage the operation.

Details always help.

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B

Basta Author

Level 2

wow! guess i blew the composition of my question. let me try again.

The S corp owns this property. My client is 100% shareholder of the S Corp.

I'm very intimate with S Corps. my question is related to the activity of renting real estate being active or passive in the following circumstance.

The property was used for other things in past but was idle, so my client decided to try renting it through air b&B.

he makes all management decisions and does almost all hands-on work toward it's maintenance.

altho renting real estate is generally a passive activity, i have been led to believe that my client's active and material participation in it allows the activity to be 'recharacterized' as nonpassive.

maybe the question should be passive vs nonpassive rather than passive vs active. my bad.

and no, he provides no services to the renters. he's an attny.

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TaxGuyBill

Level 15

@Basta wrote:

and no, he provides no services to the renters. he's an attny.

No services means it is a rental of real estate.

Rental of real estate is automatically passive unless (1) they qualify as a Real Estate Professional AND (2) they Materially Participate in that rental activity.

So unless your client qualifies as a Real Estate Professional (based on what you said, he does not), it is passive. Being "Active" or even "Materially Participating" does not change that.

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