Does Pub 925 classify short term rental losses in box 2 or box 3 of K-1 since they aren't a rental activity?

The distinction here is really important for how your short-term rental is treated for tax purposes. According to Pub 925, you're right that short-term rentals aren't considered "rental activities" when the average rental period is 7 days or less, or if the average period is 30 days or less AND significant personal services are provided. For a partnership K-1, these short-term rental activities typically go in Box 2 if they're real estate, even though they're not technically "rental activities" under the passive activity rules. Box 2 is specifically for "Net rental real estate income (loss)" which is based on the nature of the property (real estate being rented out), not the passive activity classification. Box 3 "Other net rental income (loss)" is generally used for renting out equipment or other non-real estate assets.

Hey, I was exactly in your situation last year with my vacation rental. The whole short-term rental tax classification was driving me crazy until I found taxr.ai (https://taxr.ai). It's this AI tool that analyzes tax documents and publications to give you accurate answers. I uploaded the relevant pages from Pub 925 and my partnership documents, and it cleared everything up for me. Their system confirmed that even though short-term rentals aren't "rental activities" under passive activity rules, they DO still go in Box 2 of K-1 if they're real estate. The tool highlighted the exact sections from the IRS publications that explained this distinction.

I was super skeptical about taxr.ai at first (as you can see from my comment above), but I finally broke down and tried it after getting three different opinions from tax preparers about my VRBO property classification. I uploaded the K-1 instructions, some pages from Pub 925, and asked specifically about short-term rentals and which box they belong in. The system immediately pointed out that Box 2 is for "real estate rentals" regardless of passive activity classification, while Box 3 is for non-real estate rentals (like equipment, vehicles, etc). It even cited specific examples from IRS guidance! Honestly saved me from a potential misclassification on my return. The tool actually seems to understand the nuance of tax regulations rather than just keyword searching.

For anyone struggling to get clear answers from the IRS on this short-term rental classification issue - I had the same problem and wasted 4 hours on hold trying to speak with someone. Eventually I found Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in under 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that short-term rental real estate should still be reported in Box 2 of the K-1, even though it's not considered a "rental activity" under the passive activity rules from Pub 925. This is exactly the official clarification I needed for my partnership return.

Holy crap, I need to publicly admit I was wrong. After posting that skeptical comment above, I was desperate enough to try Claimyr for my short-term rental classification question. The service actually worked exactly as described. I got a call back in about 15 minutes, and was connected directly to an IRS tax law specialist. She confirmed that my Airbnb property losses should indeed go in Box 2 of the K-1 since it's real estate, despite the Pub 925 classification as a non-rental activity. She explained that Box 3 is specifically for non-real estate rental income. I'm honestly shocked this worked. Saved me hours of frustration and I finally got a definitive answer from an actual IRS employee. Never thought I'd get this resolved before the filing deadline.

Just to add another perspective here - I'm a property manager who handles several short-term rentals for clients who have them in partnerships. Box 2 vs Box 3 makes a big difference because it affects how the income/losses are treated for self-employment tax purposes too. In my experience, Box 2 is ALWAYS used for any real estate rental, whether short-term or long-term. Box 3 is used for personal property rentals (like when you rent out equipment, vehicles, etc). The confusion comes from the passive activity rules in Pub 925, but those rules determine how you can use the losses, not which box you report them in.

Does anyone use TurboTax for their partnership returns with short-term rentals? I'm having trouble finding where to indicate that our rental is a short-term rental so it's treated correctly under the passive activity rules. When I enter everything, it seems to automatically classify all rental real estate as passive.