The IRS classifies most of your real estate investments as a passive activity. This means if those activities show a loss, it’s classified as a passive activity loss (PAL). A PAL can offset income from other passive activities, including other real estate investments, but not active income such as your salary or practice income.

An Exception - Can You Qualify?

Fortunately, you can take advantage of one important exception. Under Treasury Regulation Section 1.469-1T(e) (3)(ii)(A), short-term rentals (e.g., Airbnb, Home Away, VRBO) where the average period of customer use is less than 7 days, are not considered as a “rental activity” that’s automatically classified as passive.