Rental Real Estate tax treatment


S

scott s.

Need some help on a rental real estate investment.

My wife and I are buying a "condotel". The property is
structured as a condominium purchase and we will hold title
as tenants by the entirety.

My understanding is that the unit is not a dwelling unit.
It does not have cooking facilities. It is simply a hotel
room. The options for owners are either to use the unit
themselves, or place it in the "hotel pool". In the pool,
it is treated as part of a hotel and a management company
is responsible for obtaining guests, providing maid service,
and providing net revenue to the owners.

My wife's full-time service is a sole-proprietor licensed
real estate agent working for commissions only under
supervision of a licensed broker. I take it she is considered
a real estate professional?

Assuming at least part of 2006 the unit is in the hotel pool,
am I right in thinking that the only test is the material
participation test? This would be even if my wife is not a
real estate profession since it is a transient rental (hotel)
and not a dwelling unit? Is there any advantage from being a
real estate professional? FWIW we have other rental real
estate which is operated at a net gain.

If there is some personal use, since it isn't a dwelling
unit how is that accounted for? As a percentage business
use like other non-home assets?

Tia

scott s.
 
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Paul Thomas, CPA

scott s. said:
Need some help on a rental real estate investment.

My wife and I are buying a "condotel". The property is
structured as a condominium purchase and we will hold title
as tenants by the entirety.

My understanding is that the unit is not a dwelling unit.
It does not have cooking facilities. It is simply a hotel
room. The options for owners are either to use the unit
themselves, or place it in the "hotel pool". In the pool,
it is treated as part of a hotel and a management company
is responsible for obtaining guests, providing maid service,
and providing net revenue to the owners.

My wife's full-time service is a sole-proprietor licensed
real estate agent working for commissions only under
supervision of a licensed broker. I take it she is considered
a real estate professional?

Assuming at least part of 2006 the unit is in the hotel pool,
am I right in thinking that the only test is the material
participation test? This would be even if my wife is not a
real estate profession since it is a transient rental (hotel)
and not a dwelling unit? Is there any advantage from being a
real estate professional? FWIW we have other rental real
estate which is operated at a net gain.

If there is some personal use, since it isn't a dwelling
unit how is that accounted for? As a percentage business
use like other non-home assets?
It sounds like a Schedule C business operation (hotels are not
rental property that get reported on Schedule E). Personal
use expenses are culled out of the Schedule C expenses. Use
actual costs (if you know what thoes are) or take a percentage
of days used personally.
 
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S

scott s.

Paul Thomas said:
It sounds like a Schedule C business operation (hotels are not
rental property that get reported on Schedule E). Personal
use expenses are culled out of the Schedule C expenses. Use
actual costs (if you know what thoes are) or take a percentage
of days used personally.
Thanks Paul. Should it be considered part of the same
business activity (real estate agency) on the same sked C,
or a different activity, or is it taxpayer's option to
elect?

scott s.
 
Last edited by a moderator:

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