The first thing I want to stress here is these six words enclosed in asterisks
*Long* *Term* *residential* *rental* *real* *estate*.
Long term residential real estate income/expenses is reported on SCH E *no* *matter* *what*. There are really no exceptions that would not result in you being audited, and probably also investigated for tax fraud "with intent" to defraud the IRS. It may not happen right away. But rest assured it will happen.
The fact you can't take the deductions because of your MAGI does not mean you lose them. You don't lose them. They just carry over. Even if your MAGI is to high for years to come, including the year you sell the property, they continue to carry over. But in the tax year you sell the property all of those carry over losses "can" be used in the tax year you sell. Nice thing about that in the year you sell, is that once your carry over losses get your SCH E income to zero, the remaining losses *up to $3000 per year* can then be taken against other ordinary income.
So I suggest you quit trying to beat the system. Otherwise it will beat back and beat your wallet to an absolute pulp.
A few other things:
SCH E property is depreciated over 27.5 years.
SCH C property is depreciated over 39 years.
The TurboTax program flat out can not correctly deal with switching SCH E property to SCH C, or vice versa. Doing so throws the depreciation "way" off and it's impossible to "fix" with the TurboTax program. If you switch long term rental property to SCH C it will be impossible to get the depreciation figures right, and good luck proving to the IRS that you provided your tenants services on a recurring basis that was directly beneficial to the tenants.
Be aware also that SCH C income is subject to the additional 15.3% self-employment tax. So with such a switch that's just "yet another" flag raiser for the IRS to question why you were not reporting this on SCH C all along. Add to that, a SCH C business is expected to show a profit after 3 years in general. If no profit shown after 5 years it raises yet another flag. Since rental property almost "always" operates at a loss on paper at tax filing time every year, that's just another cog in the soup to raise flags.
