Converting a Schedule C Property to a Schedule E with Airbnb 1099-K

[BHancock]

I own and manage several properties on Airbnb and Vrbo. Most are schedule C, and 2 are furnished Schedule E's. I received a 1099-K from Airbnb and Vrbo for 2024 and I am wondering do I stick all of that income from the 1099-K's in the Schedule C portion of income or deduct it as Schedule E income and then report it over there or what?

1 property was a Schedule C for 2023, at the start of 2024 became a Schedule E

The other property was never reported as anything as we only acquired it in December of last year, however both have income on the Airbnb and Vrbo 1099's.

Essentially I converted 1 from a Schedule C to an E and one that will just be an E and I am not sure the proper way to deal with the 1099 income reporting and the preexisting depreciation on the property, etc.

[Vanessa A]

When you say they are converted to Schedule E, what do you mean by that?  How to report is not a choice, it is based on average days of rental and substantial services. Did the average rental days increase to over 7?

Short term vacation rentals are generally considered Schedule C income.    

If the property is rented an average of 7 days or less it is not considered rental activities and therefore is not reported on Schedule E, but instead it is reported on Schedule C. 

 Additionally, if you provide Substantial services, it is NOT considered rental income, instead it is considered self-employment income. 

If you do not provide substantial services and the average rental days are more than 7 days, then the income is reported on Schedule E.

 

Your activity isn’t a rental activity if any of the following apply.

The average period of customer use of the property is 7 days or less. You figure the average period of customer use by dividing the total number of days in all rental periods by the number of rentals during the tax year. If the activity involves renting more than one class of property, multiply the average period of customer use of each class by a fraction. The numerator of the fraction is the gross rental income from that class of property and the denominator is the activity's total gross rental income. The activity's average period of customer use will equal the sum of the amounts for each class. Pub925

The instructions for Schedule E state, "Use Schedule E (Form 1040) to report income or loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, and residual interests in REMICs."  

[BHancock]

"When you say they are converted to Schedule E, what do you mean by that?  How to report is not a choice, it is based on average days of rental and substantial services. Did the average rental days increase to over 7?"

I know all about Schedule C, E, and Pub925 regarding what is what, I went through all of that originally with 2022's return... I know it is not a choice how to report, but IT IS a choice how I manage the properties.

It is exactly as I said. I decided to convert (how a property functions) to a passive that was not passive prior. Again, my question is regarding 1099k Reporting from these STR platforms and the prior accounted deprecation from the 39 years over to 27.5.

With the 1099k question I can only think of 2 ways, but please let me know what is the right way or if there is another way. Do I stick the 1099k gross into schedule C income then deduct the portion that is Schedule E income, then report it in Schedule E as income, or do I just take the portion out of the 1099k gross outright and stick it in Schedule E?

Regarding the prior years' depreciation, it needs to be deducted from the cost of the property, then starting from the beginning of the year needs to be accounted for using the 27.5 method. Is that correct?

Example: Property Closed at 200k and opened as a Schedule C rental July 01, 2023.

2023's depreciation is 200k / 39 / 2 = $2,564.10

Converted to Schedule E January 01, 2024 depreciation needs to account for this.

So 200k - 2,564.10 = 197,435.90 | 197,435.90 / 27.5 = $7,179.49

So in this example 2024's Property depreciation would be $7,179.49. Is this the correct method?

[BHancock]

We actually went over this 2 years ago. Solved: Airbnb Schedule C Property and Improvement Depreciation

[BHancock]

Bump