Qualifying as a real estate professional - taxes

[Steve Hudson]

We're exploring ways for my spouse (who does not have a full time job, but works 25 hours/week outside real estate) to qualify as a real estate professional as we build our short term rental portfolio. Curious if anyone in this forum can help us consider whether these activities to count toward the qualification of real estate professional (1-3 is more clear, but not sure we can gain the 50% participation hours needed over the part time job right now): 

1) Advertise bookings on all channels (VRBO, etc), maintain all listing details and rates including researching surrounding properties and using technology tools to stay competitive. 

2) Updating blogs on our sites and others related to our property listing for demand generation.

3) Personally manage our own bookings we secure (this one is more clear to us)

4) This is the big question - we use Ring surveillance on the outside front and rear property. We are alerted with motion and do check each alert to make sure there isn't any nepharious activity. We have had to call our local property manager on occasion to respond based on what we see. If this is security, can we legitimately consider our time (essentially up to 24/7) monitoring as part of time that qualifies toward a real estate professional if we do respond to each alert to check and log events? Based on labor laws for some employment classifications, being "on call" to be available to respond is considered time working and payable. So, curious if we are in earnest going to respond to each alert (even if just during an 8 hour window for example or 56 hours per week) could be considered to contribute toward the time. Note, the 56 hours + any activity listed in items 1-3 above would be greater than the 25 hour part time job outside real estate.

Thoughts? Final disclaimer - we'd consult a CPA prior to claiming, but wanted to check this forum for opinion.

[Ashish Acharya]

Originally posted by @Steve Hudson:

We're exploring ways for my spouse (who does not have a full time job, but works 25 hours/week outside real estate) to qualify as a real estate professional as we build our short term rental portfolio. Curious if anyone in this forum can help us consider whether these activities to count toward the qualification of real estate professional (1-3 is more clear, but not sure we can gain the 50% participation hours needed over the part time job right now): 

1) Advertise bookings on all channels (VRBO, etc), maintain all listing details and rates including researching surrounding properties and using technology tools to stay competitive. 

2) Updating blogs on our sites and others related to our property listing for demand generation.

3) Personally manage our own bookings we secure (this one is more clear to us)

4) This is the big question - we use Ring surveillance on the outside front and rear property. We are alerted with motion and do check each alert to make sure there isn't any nepharious activity. We have had to call our local property manager on occasion to respond based on what we see. If this is security, can we legitimately consider our time (essentially up to 24/7) monitoring as part of time that qualifies toward a real estate professional if we do respond to each alert to check and log events? Based on labor laws for some employment classifications, being "on call" to be available to respond is considered time working and payable. So, curious if we are in earnest going to respond to each alert (even if just during an 8 hour window for example or 56 hours per week) could be considered to contribute toward the time. Note, the 56 hours + any activity listed in items 1-3 above would be greater than the 25 hour part time job outside real estate.

Thoughts? Final disclaimer - we'd consult a CPA prior to claiming, but wanted to check this forum for opinion.

 1/2/3 yes. 

4- no you cannot use 24/7. If you get the call or identified some problems via ring, and devoted some time to the issue, then yes, you can count those hours. These arguments gets litigated all the time, you might be able to defend some of your points- unlikely to win the 24/7 argument- and win the argument but are you willing to drag this to court? 

[Eamonn McElroy]

Might not matter....

Short-term rentals are generally not considered rental activities under the passive activity loss rules.

Meaning: you don't have to be a real estate professional to rebut the presumption that they are per se passive activities.

Talk to your tax advisor for the specifics...

[Steve Hudson]

Thanks for the quick reaponses Ashish an Eamonn.  Eamonn, our rentals are averaging 7+ days. Curious if your comment assumed a shorter term average number of days or the premise for why you feel they aren't typically passive. Either way I will consult a CPA and do appreciate it. 

[Michael Plaks]

@Steve Hudson

Yes, when you say STR, we assume 7 days or less. If yours average longer than 7 days, then you have to rely on REPS to deduct the losses.

As far as hours, please keep in mind that most of the answers are interpretations, since the law and the court cases give us some guidance but not really a black-and-white test. 

With that disclaimer:

1 & 3 - a pretty confident yes

2 - depends on the details. Updating listings themselves should qualify. Writing a general travel blog about the area is helpful to generate interest, but I doubt that it would qualify if challenged by the IRS.

4 - clearly not 24/7. The courts specifically prohibit being "on call" in any capacity. You can count time responding to the actual alerts, which needs to be logged.

[Steve Hudson]

Thanks for the quick reaponses Ashish an Eamonn.  Eamonn, our rentals are averaging 7+ days. Curious if your comment assumed a shorter term average number of days or the premise for why you feel they aren't typically passive. Either way I will consult a CPA and do appreciate it. 

[Steve Hudson]

Michael - thanks for your insight as well. Yes, we're in a vacation rental doing short term rentals that should average more than 7 days and we limit to 30. So, we're exploring the real estate professional options for planning purposes as we grow the portfolion.

[Eamonn McElroy]

Eamonn, our rentals are averaging 7+ days. Curious if your comment assumed a shorter term average number of days or the premise for why you feel they aren't typically passive. Either way I will consult a CPA and do appreciate it.

Correct, the strong majority of STRs have an average rental period of less than 7 days.  More like 2-4.  Hence the *generally* in my post.

If your average rental period isn't very far above 7 days, it might be easier to modify the average rental period than to qualify as RE pro.  Food for thought, good luck.