You said: The commercial rental property is to a business corporation, which I also owns.
According to the Internal Revenue Service audit guide for passive activities at http://www.irs.gov/businesses/small/article/0,,id=146326,00.html :
There are six exceptions to the definition of rental. Under Reg. § 1.469-1T(e)(3)(ii), six types of activities normally defined as rentals, are treated as non-rental activities, i.e. as businesses, in most cases. As a result, the active participation standard and the $25,000 allowance do not apply. If the activity falls outside the rental definition, it is passive or non-passive based on whether the taxpayer materially participates. Following are the six exceptions:
- The average period of customer use is 7 days or less. For example: condo rentals, short-term use of hotel/motel rooms, and businesses that rent videos/tuxedos/cars/tools, etc.
- The average period of customer use is 30 days or less and significant personal services are provided with the rental. Examples: hotels and motels.
- Extraordinary personal services are provided with the rental. Examples: hospitals, nursing homes and boarding schools.
- The rental is incidental to a non-rental activity.
- The taxpayer customarily makes the rental property available during defined business hours for nonexclusive use by various customers. Example: golf courses, health clubs and spas.
- The taxpayer provides the property for use in a non-rental activity of his own partnership, S Corporation, or joint venture. The key word here is "provides," not "rents." For example: a partner contributes property in exchange for an ownership interest. This non-leasing transaction with the partnership is not a rental. Reg. § 1.469-1T(e)(3)(vii) states: "Thus, if a partner contributes the use of property to a partnership, none of the partner's distributive share of partnership income is income from a rental activity..."
It is not conducive, in this forum, for us to attempt to exchange enough information to determine if your statement that the property you reported as a rental is used in a business that you own can definitely meet the exception in number 6 to the definition of activities normally defined as rentals.
Nonetheless, you may be well served to discuss this possibility with your current representative and your tax preparer ( or even if you have to find another experienced tax practitioner for this purpose) to determine if you were providing the property to your business rather than it being a rental. Factors in the consideration will include, but are not limited to, the structure and ownership of your business, prior reporting of the activity from the property and the type of entity involved. It is possible that the rental could be considered part of the business (when all the facts and circumstances are considered) so that the losses on the property could be included in the net profit or loss of the business without you having to qualify as a real estate professional.
Even if in the past you have not been providing the property to your business rather than it being a rental that may be a possible arrangement in the future, again, depending on your particular situation.
I hope this general information on activities normally defined as rentals,but are treated as non-rental activities, does help.