"significant personal services"... but I don't know what that means?
Do you provide services that are "directly beneficial to the tenant"? For example, maid/housekeeping services while the tenant is staying there. If you only provide those services between tenants, then it's not "directly beneficial" to the tenant.
Things are are considered directly beneficial to the tenant include:
- Making the beds while the tenant is staying there
- Cleaning services while the tenant is staying there. For example, cleaning the kitchen/bathroom.
- Emptying the inside trashcans while the tenant is staying there.
Things that are not considered directly beneficial to the tenant include:
- Preparing the property of occupancy by the next tenant, after the prior tenant vacates.
- Yard services (grass cutting, flowerbed weeding, and the such) These things get done weather the property is occupied or not.
where is "Schedule C" in TurboTax.. I can't seem to find it....and what is Schedule E?
There are two extremely basic types of business income. Both types have their pros and cons.
Non-passive income: This is more commonly referred to as "earned" income. For this type of income you generally have to go out and actually "do something" to earn it. Just like you do with your regular W-2 job. If you are self-employed and "do something" to earn money for your business, that income gets reported on SCH C - Business Income & Expenses.
Pros - SCH C income can be included when figuring your total allowed contribution to a retirement plan; be it a 401(k), Traditional IRA or ROTH IRA. This income is also included when figuring the maximum amount of social security you will be able to receive when you reach retirement age and file for social security.
Cons - SCH C income is subject to an additional 15.3% self-employment tax on top of the "regular" income tax you may pay on this income. Basically, the SE tax is the employer's side of your social security tax and Medicare tax. So "in a sense" you're paying your future self with that additional 15.3% self-employment tax.
Passive income: This type of income includes rental income and royalty income. To receive this income you don't "do" anything to actually earn it. All you do is "sit there" and collect that income on a periodic basis; be it once a week, once a month, or whatever. This income is reported on SCH E - Rental & Royalty Income & Expenses.
Pros: SCH E income is NOT subject to the additional 15.3% self-employment tax. So you will only pay "regular" tax on any profit realized. Typically, long term rental property operates at a loss and you won't realize any taxable gain until the tax year you sell. But for short term rentals like VRBO & AirB&B it's more common to actually show a profit. It just depends on your pricing and your expenses of operating the property.
Cons: SCH E income can not be included or used for figuring your maximum retirement contributions since it's not "earned" income. It also doesn't count for figuring your maximum allowed social security income when you reach retirement age and file for social security.
So, if you do not provide services directly beneficial to your tenants, you'll report all your rental property income and expenses on SCH E which is in the section titled "Rental & Royalty Income (SCH E). In the desktop version of TurboTax Home & Business and the online version of TurboTax Self-employed, you'll find that section under the Business tab. IN all other versions you'll find it under the Personal Income tab.
If you "do" provide your tenants services that are directly beneficial to them, then you can report your rental income and expenses on SCH C. That section is named "Business Income & Expenses" and you'll find it under the Business tab in the desktop Home & Business version or the online Self Employed version. For all other versions of the program it will be under the Personal Income tab.
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