Why Aren't Rental Losses Netting with Gains?

[Firehead]

Husband and Wife filing jointly. Wife has K-1 from Skating business, Husband has K-1 from Skating Retail business, Both receive K-1 from joint business in two rental properties (neither are RE Professionals) and she has a Schedule E Vacation Rental. My question is, why aren't the passive losses from the K-1's on the two rental units (and carryforward rental losses) being netted with her Schedule E rental gain? The gain should wipe out the current rental losses and the carryforward losses. I use ProSeries Basic. It seems to me they should net out. Am I missing something? Thanks in Advance for assistance!

[sjrcpa]

Does the Vacation Rental qualify as Passive?

[TaxGuyBill]

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@Firehead wrote:

she has a Schedule E Vacation Rental.

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1. Do they have personal use of the rental?  If so, what are the number of personal days and the number of rental days?
2. Is this short-term rentals?
3. Do they "materially participate" in the rental?

[Firehead]

Hi TaxGuyBill

They used the vacation rental no more than 14 days, the rentals are short term (Vrbo), and she materially participates in that she drives down most weekends to help clean for the next renter. Plus, she supervised all the redecorating, as well as the improvements to the building/lot.

[Firehead]

Hi

She materially participates, but isn't a real estate professional.

[JRC]

Rental income/loss is Passive and will not offset active income. 

[BobKamman]

Shouldn't that go on Schedule C?

[TaxGuyBill]

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@Firehead wrote:

the rentals are short term (Vrbo), and she materially participates

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Material Participation in a short-term rental is not passive.

Therefore the Passive Income from the K-1s don't have any Passive Gains to offset.

[Firehead]

What is the difference between material and active participation in short term rentals? She does use Vbro to list the rental. They have a lot of passive loss carryovers from the two rental properties from their joint business K1s. I was really hoping I could net them. Darn!

[TaxGuyBill]

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@Firehead wrote:

What is the difference between material and active participation

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Material Participation rules are here:

https://www.irs.gov/publications/p925#en_US_2021_publink1000104581

Versus Active Participation:

https://www.irs.gov/publications/p925#en_US_2021_publink1000104573