@TaxGuyBill  

Yes, that carryover loss is the fly in the ointment (or the way to earn extra credit on the exam question). The taxpayer only became a “real estate professional” this year when he bought the commercial building? But the post says the election to group activities has already been made. We’re back to playing “I’ve Got A Secret” about what happened last year.

And exactly what is the “vacation rental”? Is this an Airbnb, or is it a place at the lake that is rented out when the family isn’t using it? There is some interesting material in the IRS Audit Manual about vacation rentals – I’m not sure I agree with the 7-day test, but I haven’t had to research it for my own clients.

“Activities with an average rental period of 7 days or less are defined as businesses, not rentals. Therefore, the active participation standard and the $25,000 rental real estate allowance do not apply to these types of activities. Losses, if passive, go on Form 8582 line 3b, not 1b.

• The personal use rules IRC § 280A take precedence over IRC § 469. If the taxpayer or family members spent more than 14 days at the property, losses generally are not allowed under the rules in IRC § 280A. The losses do not enter into the passive activity computation and should not be
entered on Form 8582.”

https://www.irs.gov/pub/irs-mssp/pal.pdf