Can S-Corp Income Offset Rental Losses Under Section 469? (Self-Rental Rule Question)

Thanks for the detailed response. I have a similar situation except I'm not living on the property. When considering the interdependencies between activities, does it matter that my S-Corp is the ONLY tenant of my real estate LLC? Does that strengthen the case for an "appropriate economic unit"? Also, is this grouping election something that has to be made in the first year, or can it be done later?

Having your S-Corp as the only tenant does strengthen the interdependency argument, as the rental activity wouldn't exist without the S-Corp business. This is definitely a factor that supports grouping them as an appropriate economic unit. The grouping election generally needs to be made in the first year you're reporting these activities, on a timely filed original return (including extensions). Once made, you must maintain that grouping unless there's a material change in facts and circumstances. Be aware that grouping decisions can have long-term implications, so it's worth consulting with a tax professional familiar with your specific situation before proceeding.

Did taxr.ai actually tell you whether you could offset the losses or not? Or did they just explain the rules? I've spent hours reading about this and keep getting different answers from different accountants.

I'm a little skeptical about these online services. How does it work exactly? I mean, does it just spit out generic advice or does it actually understand the nuances of §469 grouping rules? These are complex regulations with a lot of gray areas.

They didn't just tell me whether I could offset losses - they explained why based on my specific facts and circumstances. They provided an analysis of why my situation would likely qualify for grouping under the appropriate economic unit test, with citations to the relevant regulations and court cases. It's not generic advice at all - you upload your specific documents and information, and they analyze your actual situation. The platform is built on tax law research and they cite the specific regulations, revenue rulings, and court cases that apply to your situation. For complex issues like §469 grouping where there's a lot of nuance, they explain the grey areas and where your situation falls within existing precedent.

How does Claimyr work exactly? I've been on hold with the IRS for literally 3+ hours multiple times and always get disconnected. Do they just call and wait on your behalf? Seems too good to be true that they could get through in 45 mins when the IRS phone lines are basically impossible.

Sorry, but this sounds like BS to me. The IRS doesn't have "specialists" you can just call up and get free tax planning advice from. They'll give general guidance on how to interpret forms and publications but they won't give you specific advice on how to structure your business to minimize taxes. That's what tax professionals are for. I highly doubt any IRS agent would give definitive advice on Section 469 grouping elections.

They use technology to navigate the IRS phone system and secure your place in line. Once they have an agent on the line, they call you and connect you directly so you don't waste hours on hold. It's not that they have a special line - they just handle the frustrating waiting part. I didn't say they gave me tax planning advice. What they did was clarify how they interpret the self-rental regulations and what documentation they look for when reviewing grouping elections. The agent explained the factors they consider when determining if activities constitute an appropriate economic unit. This wasn't about minimizing taxes - it was about understanding how to correctly apply a complex regulation so I could properly determine if my situation qualified.

I hadn't thought about electing S-Corp treatment for the real estate LLC too. That's an interesting angle. Would that potentially create any issues with the self-rental rules? And good point about state taxes - I'm in California, which I know can be complicated with these pass-through entities.

Electing S-Corp treatment for the real estate LLC could complicate things with the self-rental rules since it might affect how the relationship between the entities is viewed. The self-rental rules specifically address relationships between rental activities and businesses where the taxpayer materially participates, so changing the entity classification could impact that analysis. California is definitely one of the more complex states for pass-through taxation. They have their own rules for passive activity losses and S corporations, including an entity-level tax on S-Corps. I'd recommend getting specific California advice as part of your planning, as the state tax implications could be significant enough to influence your overall strategy.

Triple-net leases are typically classified as rental activities, not business activities, specifically because the landlord provides minimal services. For an activity to be considered non-rental under §469, you generally need to provide "significant services" to the tenant. With a NNN lease, the tenant is responsible for taxes, insurance, and maintenance, so the landlord's involvement is minimal.