Do you own real estate that you rent out during the summer? The tax law generally treats such properties as “passive activities” subject to certain limits. Generally, you cannot claim an overall loss.
Key exception: A property with an average rental period of seven days or fewer (i.e., a “short-term rental property”) is not considered a rental activity for this purpose. Thus, losses are exempt from the passive activity limits if you can show that you “materially participate” in the activity.
For example, if you work more than 500 hours a year in the activity, you can qualify as a material participant in the activity. Other tests may also apply.
These tax rules are extremely complex. Obtain professional guidance for your situation.
Other articles in the June 2011 Edition of Business Matters: