There are certain rental activity exceptions that taxpayers should be aware of before claiming deductions on their IRS taxes. The following are not considered rental activities and DO NOT qualify for the “up to $25,000” rental loss allowance:

Rental of a Dwelling under §280A(c)(5). This covers home office, use of home for business storage, vacation homes, rental to related parties, and day-care centers. These are NOT PASSIVE ACTIVITIES for the year in question; use the rules of §280A.

Where a dwelling unit is used by the taxpayer as a residence and is rented out for less than 15 days during the tax year, then the rent isn't included in the taxpayer's gross income and no deduction due to the rental use of the dwelling unit is allowed, other than the normal interest and tax deductions on Schedule A. (Section 280A(g)) Thus this is not a passive activity and the “active participation” $25,000 loss allowance does not apply.

Activities with 7-day or Less periods of use are not considered rentals (See page 3.17.05);

Activities with 7 30-day Periods of rental are not considered rentals if significant (10% or more of attributable income) personal services are rendered (See page 3.17.05).

Activities Where Extraordinary Personal Services are provided to make the rental incidental to a business activity.

Incidental Income is presumed if property is held for sale within the same year, or for use to house employees, and where annual rental income does not exceed 2% of the lesser of FMV or adjusted basis of property.

An Activity That Allows Nonexclusive Use during business hours to customers.

Rental To Self or for non-rental activities of partnership, S-corp., or joint venture in which TAXPAYER owns an interest. These are allowed if in place on 02/18/88; agreements after this are not considered rentals. See “Recharacterization” below; these are passive if there is a net loss, non-passive if net income.