I guess why does it matter if business versus schedule E?
Typically, residential rental real estate is reported on SCH E. This type of income is referred to as passive income. Basically, meaning all you do is "sit there" and collect it on a periodic basis. Passive income is subject to "regular" income tax, but is not subject to the additional 15% self-employment tax on top of the regular tax. Additionally, passive income can not be used when figuring the maximum allowed contribution that can be made to a tax deferred or ROTH retirement account, and is not used when figuring what your social security payments will be when you reach retirement age.
For rental property to qualify as a SCH C type of business, one of the major requirements is that you must provide services to your tenant that are directly beneficial to that tenant. For example in your case where you're basically running a short term rental similar to running a hotel, if you provide your tenants like daily cleaning services, then your business would qualify as a SCH C type of business. If you only provide your cleaning and other services between tenants, then that's not directly beneficial to the tenants really.
With a SCH C business you pay regular income tax on the earnings, plus the additional 15.3% self-employment tax. Understand that SE tax is basically your Medicare and Social Security contributions. So "in a sense" that additional 15.3% is getting paid to your future self. Therefore, SCH C income can be included when figuring your allowed contribution maximums to a retirement plan, as well as being including when figuring your maximum social security payment when you reach retirement age.
Now since you've been reporting your income as passive income on SCH E, if you qualify as a SCH C business and wish to switch, you can. But it's not a simple process you can do yourself. You'd be wise to seek professional help in the year you make the change. One thing that changes between SCH E property assets and SCH C property assets, is that while SCH E rental property is depreciated over 27.5 years, SCH C business property is depreciated over 39 years. So it requires a quite a bit of math to make the switch which results in a change in cost basis. Additionally, you still have to manually document the depreciation already taken on the property on SCH E, as you will still be required to recapture that SCH E depreciation in the future even if you switch to SCH C.
Personally, I would not do the switch at this point in time. But if in the future I acquired another property that I was going to rent as an AirB&B or VRBO short term rental, I'd provide my guests with services directly beneficial to them and make sure I met all other requirements to treat it as a SCH C business.
