Per IRS Pub 925, short term rentals aren't a rental activity - do these losses still go to box 2 of K-1?

Thank you for the explanation! So my accountant is correct about Pub 925's classification, but that doesn't necessarily change which box we use on the K-1? I'm still confused about one thing though - does this mean my short term rental losses are potentially treated differently for passive activity loss limitations?

Yes, your accountant is correct about the Publication 925 classification, but that classification primarily affects passive activity rules rather than which box to use on the K-1. For passive activity loss limitations, short-term rentals with average stays of 7 days or less are generally considered "business activities" rather than "rental activities." This means they might be subject to different rules regarding passive loss limitations. If you materially participate in the short-term rental activity (which many Airbnb hosts do), the losses might not be subject to passive activity loss limitations at all, meaning you could potentially use those losses to offset other types of income.

How exactly does this work? Does it just give general advice or does it actually look at your specific documents? I've got a similar situation with 3 short-term rentals but also some long-term properties, and I'm trying to figure out if they should be grouped together or reported separately.

Sounds interesting but I'm skeptical. My CPA charges me $375/hr for this kind of specialized tax advice. How could an AI tool possibly understand all the nuances of partnership K-1 allocations and passive activity rules? These are literally some of the most complex areas of tax law.

It actually analyzes your specific tax documents and situation - not just general advice. You upload your documents and it identifies the relevant parts while explaining how the tax code applies to your specific scenario. It's built specifically for tax complexities like partnership reporting and passive activity rules. The team behind it includes tax professionals who've programmed in all the specialized rules. It saved me hundreds compared to the hours my accountant would have billed trying to research this relatively obscure issue. What impressed me was how it cited specific IRS regulations and court cases relevant to my situation.

Wait how does this actually work? The IRS phone systems are deliberately designed to be impenetrable. Are you saying this service somehow bypasses the phone tree and waiting queues?

No way this is legit. I've been a tax professional for 8 years and there's absolutely no way to "skip the line" with the IRS. They literally don't have enough staff to answer calls - that's why the wait times are so long. This sounds like a scam that just takes your money and puts you in the same queue.

It doesn't bypass anything illegitimate - it uses technology to navigate the IRS phone system for you. It dials repeatedly using smart algorithms that know the best times to call and which menu options to select. When it finally gets through the queue, it calls you to connect with the agent. It's completely legitimate and works with other government agencies too. I was skeptical at first, but after wasting hours trying to call myself, I was connected to an actual IRS business tax specialist who answered my exact question about K-1 reporting for short-term rentals.

I haven't seen rejection specifically for box 2 vs box 3 issues, but incorrect reporting can create problems during an audit. The bigger practical impact is actually on your personal return - where you report the K-1 income affects how it's treated for self-employment tax, passive activity limitations, and potentially qualified business income deductions.

Thanks for the insight. So it sounds like the box classification matters more for downstream tax treatment than for the actual filing acceptance. That makes sense - I was just trying to figure out if this was worth potentially amending prior returns or just getting it right going forward.

This is what I've been looking for - a simple explanation! Is the 500 hour requirement per property or across all properties? I have 3 short term rentals and probably spend about 250-300 hours total managing them.

The 500 hour test is typically applied across all your rental activities combined, not per property. So if you're spending 250-300 hours total managing your 3 short-term rentals, you might be close but not quite there yet for material participation under that test. However, there are other material participation tests you might qualify under! For example, if your participation in the rental activities constitutes "substantially all" of the participation by all individuals (including employees) for the year, you could still qualify. This is often the case for individual short-term rental owners who handle most operations themselves. You should definitely track your hours more precisely and consider whether you meet any of the other 6 material participation tests beyond just the 500-hour rule.