News Archive: Ask the Professional - How is the loss from my vacation rental treated?

For Immediate Release:
March 13, 2009

BRAD GAI, Audit Stockholder
bgai@rina.com • 925-210-2180
1220 Oakland Blvd., Suite 300
Walnut Creek, CA 94596 www.rina.com

Q. How is the loss from my vacation rental treated?

A. Generally, losses from rental real estate are subject to the Passive Loss rules (i.e. generally, losses can only be taken to the extent of passive income). However, there is an exception for real estate rented an average of seven days or less where the owner materially participates. Generally, an owner must satisfy any one of a number of tests. As a practical matter, the taxpayer must be managing the property and arranging for all of the services normally associated with management. In addition, the owner must demonstrate that she spends a signifi cant amount of time managing the activity (generally more than 100 hours). If the owner fails the material participation test, then the loss from the activity remains a passive loss subject to the passive loss rules. In addition, rentals used personally may be limited under the stricter “vacation rental rules”.