Trade or Business Activities

A trade or business activity is an activity (other than a rental activity or an activity treated as incidental to an activity of holding property for investment) that:

Figure the average period of customer use for a class of property by dividing the total number of days in all rental periods by the number of rentals during the tax year. If the activity involves renting more than one class of property, multiply the average period of customer use of each class by the ratio of the gross rental income from that class to the activity's total gross rental income. The activity's average period of customer use equals the sum of these class-by-class average periods weighted by gross income. See Regulations section 1.469-1(e)(3)(iii).

Significant personal services include only services performed by individuals. To determine if personal services are significant, all relevant facts and circumstances are taken into consideration, including the frequency of the services, the type and amount of labor required to perform the services, and the value of the services relative to the amount charged for use of the property.

1. Involves the conduct of a trade or business (within the meaning of section 162),

2. Extraordinary personal services were provided in making the rental property available for customer use. This applies only if the services are performed by individuals and the customers' use of the property is incidental to their receipt of the services.

3. Rental of the property is incidental to a nonrental activity.

4. Is conducted in anticipation of starting a trade or business, or

5. Involves the conduct of research or experimental activities, including software development, subject to either section 174 (foreign research) or section 174A (domestic research).

Trade or business activities are generally reported on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship); Schedule F (Form 1040), Profit or Loss From Farming; or in Part II or III of Schedule E (Form 1040). For trade or business activities that are significant participation passive activities (defined in item 4 under Tests for individuals , later), see Pub. 925 for how to report their income or losses.