Does vacation rental income go in schedule C or E?

[candycanepanda]

I thought that vacation rental income went into schedule C because it is active income and not passive.

However, the Schedule E form from 2021 I noticed now says "including vacation rental income"

Did something change and is vacation rental income now passive income as well eligible under schedule E? 

This assumes the vacation rental is ran full time as a vacation rental.  

[Anonymous_ · Accepted solution]

Income and expenses from residential rental real estate is reported on Schedule E unless the owner of the real estate is providing substantial services to the renter(s) or is considered to be a real estate dealer (in which case the income and expenses are reported on Schedule C).

Residential rental real estate profits and losses are generally considered to be passive except in certain circumstances (e.g., where the owner materially participates in the rental activity as a real estate professional).

[DoninGA]

Rental income is always passive income, assuming the property was Not used as a home.  Or you have a business which has rental properties then you report the business income and expenses on Schedule C.

Otherwise, you enter the rental income and expenses on Schedule E.

IRS Publication 527 Residential Rental Property (Including Rental of Vacation Homes) - https://www.irs.gov/pub/irs-pdf/p527.pdf

[candycanepanda]

Thanks @DoninGA what do you mean by "or you have a business which has rental properties"....

Are you referring to property managing other people's homes? 

I have an LLC to protect my assets but I wouldn't describe what I have as a "business" because someone else with a business takes care of those matters for me.  

[candycanepanda]

Thanks @Anonymous_ 

I am a licensed real estate agent and I do way more than 750 hours, maybe 75,000 hours! lol.... on top of my day job... so I do materially participate to qualify for the max deductions.  And yes all my time is logged I am aware of the special proof needed.  

Does this change your answer at all regarding placing vacation rentals into schedule E ? 

[Anonymous_ · Accepted solution]

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@candycanepanda wrote:

Does this change your answer at all regarding placing vacation rentals into schedule E ? 

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No. The issue is whether the income is passive or nonpassive. The rental income and expenses derived from the vacation rentals are reported on Schedule E unless you provide substantial services to your renters.

See https://www.irs.gov/publications/p527#en_US_2020_publink1000234065

If you are a real estate professional and materially participate in your rental property(ies), then losses from that rental activity are nonpassive (i.e., can be deducted from income other than only passive income).

Further, per Section 280A, if you use the vacation rental as a residence, which is defined as using the property for personal purposes for a number of days which exceeds the greater of 14 days, or 10 percent of the number of days during such year for which such unit is rented at a fair rental, then the profit/loss is nonpassive.