J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

10.1 Rental Activities

Rental activities (real estate or personal property) are automatically treated as passive unless you qualify as a real estate professional (10.3) or the rentals by law are excluded from the rental category and are instead considered to be business activity (see below). If “automatic” passive activity treatment applies, you may not deduct a rental loss against nonpassive income such as salary or investment income unless you can take advantage of the up-to-$25,000 allowance that applies to rental real estate losses (10.2). Even where rental income or loss is not automatically treated as passive because you qualify as a real estate professional or because the activity is excluded from the rental category and treated as a business (see the list below), income or loss will still be “passive” unless you materially participate (10.6) in the business activity.

What is a rental activity?

Except for activities specifically excluded from the rental category (see the list of rentals treated as businesses below), rentals include all activities in which a customer pays for the use of tangible property (real estate or personal property). Such activities include rentals of apartments and commercial office space (whether long- or short-term); long-term rentals of office equipment, automobiles, and/or a vessel under a bareboat charter or a plane under a dry lease (no pilot or captain and no fuel); and net-leased property. A property is under a net lease if the deductions (other ...