It depends based on your situation. The income is reported on Schedule E since you are not a real estate professional and you do not provide substantial services (example, cleaning/maid service). The...
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It depends based on your situation. The income is reported on Schedule E since you are not a real estate professional and you do not provide substantial services (example, cleaning/maid service). The exception to take advantage of losses and report on Schedule C is owners must materially participate, such as working over 100 hours and more than anyone else, or over 500 hours total on the rental activity.
If you qualify, you would report this on Schedule C and be prepared to pay self employment tax on any net profit.
It's not advisable to flip flop from year to year once a decision is made, although it's possible a permanent change could occur if your practices change.
If not, then this is considered as 'passive income' and will follow the passive activity loss (PAL) rules. Active participation is a requirement to be allowed to reduce other income by the loss on your rental property. There is also an income limit that begins to reduce that amount.
Phaseout Rule: The maximum special allowance of $25,000 ($12,500 for married individuals filing separate returns and living apart at all times during the year) is reduced by 50% of the amount of your modified adjusted gross income that’s more than $100,000 ($50,000 if you’re married filing separately). If your modified adjusted gross income is $150,000 or more ($75,000 or more if you’re married filing separately), you generally can’t use the special allowance. This is because the special allowance is reduced to $0 since the modified adjusted gross income is over the $100,000 amount.
@Kas1244