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Business & farm
M-MTax has provided correct information on this, short-term rentals go on Schedule E unless substantial services are provided. This is my specific area of expertise, and I've been through this debate many times because this is a very common area of confusion among tax professionals. Most of the following is from my usual information when someone wants references if there is some doubt.
IRS References and Tax Law
The instructions for form 8582 have a well written explanation of it, I recommend reading the "Rental Activities" section of that for a clear explanation. Other references for this include the Schedule E instructions about Line 3 (specifically, the paragraph that starts with "Generally, rental real estate activity is reported on Schedule E..."), IRS Tax Topic No. 414 which details when to use Schedule C for rentals, and IRS Letter Ruling [removed] which details when self-employment tax is applicable to rentals (which is equivalent to choosing Schedule C vs. Schedule E).
If you want a technical tax code-level explanation, when a rental activity has an average stay of 7 days or less and the taxpayer materially participates, then it is no longer defined as a rental activity under the passive activity loss rules in § 469 and § 1.469-1T(e)(3)(ii)(A). But that only applies to section 469. It is, however, still defined as a rental activity under § 1402 and § 1.1402(a)-4, which excludes it from being subject to self-employment tax. Self-employment tax is the defining differentiator in separating activities between IRS Schedule C and Schedule E, and that's why the instructions for those forms specify that rental activities without substantial services don't go on Schedule C.
How to Correctly Apply the "STR Loophole"
The difference is that the tax loss isn't limited by the passive activity rules on form 8582. Most professional tax software (and some consumer tax software) have an option to specify that rental income is non-passive, and that will cause the Schedule E tax loss for that activity to bypass form 8582. That's how you do it, not by putting it on Schedule C.
My understanding is TurboTax Online currently doesn't yet have a way to correctly report short-term rentals as non-passive. But you can with the desktop version of TurboTax, but they don't make it easy. You have to go into the forms mode on the Schedule E worksheet, then check the boxes "G - Other passive exceptions" and "D - Material Participation".
Edit: AmeliesUncle's reply after this one does a good job of reminding us that having an average stay under 7 days is not enough to make it non-passive, you must also additionally meet the qualifications for material participation! Without both of those things, it's just a passive rental activity and you can't apply this change.
Is this substantial services?
I provide entire house cleaning, bed linens and all. I actually have a contract with local cleaners for regular cleaning. Also provide supplies/consumables, unlimited utility usage, 24/7 customer support. I have even delivered pots and pans when a guest requests something specific that they need.
I book an average of 3-4 day rentals, clean the casita after each renter to turn it around for the next renter and charge a cleaning fee. Other than that, I only supply the unit and book through Airbnb. I think this meets the significant services requirement to file on Sch C???
No, that would still be a Schedule E rental activity because those wouldn't be considered substantial services. The guidance on this is that services like cleaning between stays and other activities to "make ready" a unit are not considered to be substantial services. Cleanings may be a contributing factor only if they are provided during guests' stays, not just between guests. Providing items of any kind (sheets, a stocked fridge, skis, etc.) are not a contributing factor. It must be services provided for guests during their stay. Examples include preparing meals, daily cleanings, ski lessons, etc. "Delivering pots and pans" may qualify, but I wouldn't say that's substantial enough to change the nature of the activity unless you're fetching items for guests on a regular basis.