IRS sent me a letter requesting a completion of Sch. SE for $11k house sitting fee that I reported in 2018. The fee is not rent. Should I file the SE?

[sdavis3625]

The house sitting fee is from a friend of my daughter who is maintaining its upkeep until my daughter returns from her school's 2 year internship. I reported the fee as other income on my 2018 taxes.   Its a bartering agreement, the person in the home takes care of it for 2 years and pay only a $1000 a month.  The fee is less than rental market rates and all insurance and utilities are still in my daughter's name.. "

[LisaS]

Are you receiving the money or paying the money out?  If you are receiving the money then this is considered "business" income and you need to fill out a Schedule C or mark the income as self employment income.

[sdavis3625]

I am receiving the funds but not off setting expenses against it.  Like a bartering agreement, the person is house sitting in exchange for a monthly fee.   The fee is not even market rate if I were to rent it out.

[DawnC0]

You don't have to report expenses, but you can, which will lower the amount of taxable ''other income''.  The IRS is inquiring about the SE (self-employment) taxes which do not apply to you if you do not have a profit motive in the transaction.  

[sdavis3625]

Thank you.  This has helped!

[DawnC0 · Accepted solution]

No, what you described is not self-employment.  If you rent your property below fair market value, the IRS considers that you do not rent your property to make a profit.  It sounds like they need an explanation of the income.  If you described it as house sitting, you implied that you were the one house sitting, which would be self-employment income.  You claimed the income correctly.   

 Per the IRS, "If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year."

Per the IRS, you would report your not-for-profit rental income on Form 1040, Schedule 1, line 8, Other Income.

If you are filing Form 1040 and you itemize your deductions, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses.

For more information, please see this IRS link: https://www.irs.gov/publications/p527/ch04.html#en_US_2016_publink1000219164