If you are not Materially Participating, the loss will be reported on Form 8582 and like be classified as "Unallowed".The ordinary loss from Schedule E cannot offset the Schedule D capital gains. 

I got this e-mail too.

I googled it and found this:If you rent it to tenants, you would treat it as a rental and report it on a Form Schedule E.

Quote from @Rebecca E.: @Katie MillerI came here because I just had my yearly with my new accountant.

E Equity, how much of the home will you own on day one.  

That comment also seemed to imply that you don't report the rental on Schedule E if you have an LLC, but that's not correct, with a single member LLC it still goes on Schedule E."

You can however, write off the other unit as a rental on a Schedule E.

I'll wrap this post by pinging two other Japan-based American investors for their thoughts (until they actually tell me to stop doing this): @Steven E.

As eric pointed out, someone who lives in Phila will have to be registered as a manager of the property to obtain a rental license - usually a PMPersonally if you're looking to target SFH I would recommend: Roxborough (for 3+ bedroom - there is a large saturation for 1-2 bed apartments in area), East falls, E and W Mount airy (need to be proficient in neighborhood to know where the good and not so good blocks are, and far NE philly.

(more legal fees, business fees vs. renovations).Research Points: §1.263A-1T§195(c)(1)Ervin E.