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?

[Basta]

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.

[TaxGuyBill]

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]

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.

[Basta]

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.

[TaxGuyBill]

---

@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.

[qbteachmt]

Well, in my State, the only people authorized to manage property rentals (other than an individual owner) would be licensed real estate professionals and attorneys. An attorney that has an Air B&B needs to be managing the schedule and the changeover (linens, damage, cleaning, etc) and the money.

It's always odd when an S corp owns real estate. Are we sure this person is not "in the business?"

[BobKamman]

Let's at least get the name of the company right, it's Airbnb.  Then let's not say that it is involved in "leases," or even "rentals," at least in the sense that Hilton or Marriott "rent" real estate.  Generally, Airbnb people stay a few days, or maybe a week, and then the place is cleaned up so that the next "guest" can use the property of the "host" for a short stay.  This would go on a Schedule C, if an S corporation were not involved.  

By omitting the detail from your posts, I assume you are telling us that he hires someone else to come in and clean the toilets and make the beds between stays.  I think he's still running a business, not managing a rental. And that answers your questions.  

[qbteachmt]

We have quite a few RE sales listings here where it mentions the property was leased to an Airbnb or Vrbo operator, and the owner is selling the property. At first, I thought that is what we were being told: this S Corp leases property for its use in a management operation from others, and then makes it available through a "rental pool" service such as Airbnb. If the S corp leases property it owns to an Airbnb operator, that would be different than making its own property available through Airbnb.

I live in a recreational corridor. I worked for an entity having 147 units under rental pool management at a lake/ski resort area. There are a lot of options in the arrangements when you include Airbnb and Lease in a sentence.

[BobKamman]

Those would not be "leases through Airbnb," which is what the question asks.

[qbteachmt]

Yes, at first I thought, Who cares where this person lives?