Investors & landlords

That's a very common misconception, so common that I have a standard block of text that I wrote that I paste in discussions whenever this comes up.  

Rentals, including short-term rentals usually go on Schedule E.  There are only two situations when rental income can go on Schedule C.  One is "substantial services" (such as providing meals or daily cleanings *during* guest stays, which is rare).  The other rare exception is for a real estate dealer (such as someone flipping houses) with incidental rent income during a flip.   

Some of the confusion comes from the "STR loophole" or "STR tax strategy" 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.  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.  That's how you do it, not by putting it on Schedule C.  Unfortunately, TurboTax Online has no way to handle this correctly.  TurboTax Desktop can do it by choosing some options in forms mode.  This is one of a couple issues TurboTax has with unfortunately still not handling short-term rentals correctly.

For anyone who wants an IRS source for this information, the instructions for form 8582 have a well written explanation of it, so I would recommend reading the "Rental Activities" section of that for a clear explanation of that.  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 202151005 which details when self-employment tax is applicable to rentals (which is equivalent to choosing Schedule C vs. Schedule E).

I should say that many tax pros do still put STRs on Schedule C.  In fact, most of us used to think STRs should go on Schedule C, and the more widespread understanding of how to do this correctly has just come about in the past several years.

If you want a technical tax code-level explanation, when a rental activity has an average stay of 7 days or less, 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.

"I did sometimes bring the guests treats, towels, and/or other supplies during their stay but I didn't do daily cleaning so I don't know if this passes the substantial services"

A note about this specific situation, there are tax court cases and IRS publications that go through various examples.  There are situations where it's clear-cut.  But from your description, I don't know if I could say for sure if that would be judged to be substantial services or not.  I would say if that came up in a tax court case, it would probably come down to a judgement call involving factors like how frequently you went to the property during guest stays to provide those items, but it would probably have to be close to an everyday or maybe every other day for it to qualify.  The way we think about this is whether it is an activity that is more like a rental activity, or if it's more like the operations of a something that is operated like a hotel business.