There is a lot of confusing misinformation on the question of whether short-term rentals go on Schedule E or C, but the rules around this are actually pretty simple and well defined. Unfortunately, TurboTax doesn't do a good job of guiding you on this, as you have found.
There are only two situations when rental income can go on Schedule C. One is a rare exception for a real estate dealer (such as someone flipping houses) with incidental rent income during a flip. The other is if the rental provides "substantial services". That is defined as services for guests during their stay, such as daily hotel-style maid cleanings of the room, a "turn-down" service, or a bed and breakfast that provides meals or daily activities. Cleanings between guests aren't considered substantial services, so that's not what we're talking about. So most short-term rentals go on Schedule E, but if they do daily housekeeping at your condotel, that may be one of these rare situations where you do have a Schedule C rental with substantial services.
Some of the confusion comes from the "STR loophole" which allows you to deduct rental tax losses from your regular income if the average stay is 7 days or less and you qualify for the material participation rules. But even when using that exception to classify STR income as non-passive, it still doesn't go on Schedule C, it still goes on Schedule E. The difference is that the tax loss isn't limited by the passive activity rules on form 8582. TurboTax Online still lacks the ability to do that, unfortunately, so it's not suitable for this fairly common situation with short-term rentals. The desktop version of TurboTax does, but you have to go into forms mode to do it. Pretty much all professional tax software has 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.
David Orr
Tax Modern
