Generally, Schedule E should be used to report rental income/loss.
According to the IRS: "Generally, Schedule C is used when you provide substantial services [i.e. hotel like services] in conjunction with the property or the rental is part of a trade or business as a real estate dealer."
Schedule C:
- Advantage: Losses reported on a Schedule C are not limited by the Passive Activity Loss Rules.
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Disadvantage: Income on Schedule C is subject to Self Employment Taxes.
Schedule E:
If you file a Schedule E, you may be able to deduct up to $25,000 of losses from a Schedule E if you Actively Participate in the rentals. The IRS defines Active Participation as:
Active participation:
You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide
sense. Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions.
For more information please see: IRS
Publication 527
