We are in the process of an IRS audit on our vacation cabin. The cabin qualifies as a hotel. To deduct our losses, all we have to prove is that we materially participate in the cabin activity. In the IRS publication on passive losses, there is a section that says taxpayers materially participate when they meet one of the seven tests described. We meet one of those tests.
The IRS agent who examined our return said that the “one of ... Log in to view full article.