All rental income is reported on SCH E (not SCH C) as a part of your personal 1040 tax return. You'll enter it under the Business tab in the "Rental & Royalty Income (SCH E) section of the program.
SCH C is for earned income. Rental income is not earned. (You have to go out and actually "do" something on a recurring basis to actually "earn" it.
SCH E is for passive income. Rental income is passive. (You don't do anything on a recurring basis to actually earn it. All you do is just "sit there" and collect the income each payment period it is due. Usually monthly.)
Therefore it gets reported on SCH E.
You will need the below information, as it provides details and clarity that (in my personal opinion) the program lacks.
Rental Property Dates & Numbers That Matter.
Date of Conversion - If this was your primary residence before, then this date is the day AFTER you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.
RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED
Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.
To be classified as a property improvement, two criteria must be met:
1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.
2) The improvement must add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.
Cleaning & Maintenance
Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.
Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.
Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.
However, when you do something like convert the garage into a 3rd bedroom for example, making a 2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.
No, you will report your rental income and expenses on Schedule E. Rental income is not considered self-employment income.
To enter your rental property information follow these steps.
- With TurboTax open enter rental property in the search box
- Select Jump to rental Property in the results window
- Follow the prompts to enter your rental information.
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Rental income is "a type of" self-employment income. Here's the difference.
When you are self-employed and "in business" for yourself, that generally means that you either provide a product or service to others "on a recurring basis" to earn that money. This type of income is referred to as non-passive, or earned income. This income gets reported on SCH C as a part of your personal 1040 tax return. In addition to the "regular" tax you pay on this non-passive earned income, you also pay an additional 15.3% self-employment tax. That SE tax is basically the employer's side of your medicare and social security. 12.3% of the SE tax gets credited directly to your personal social security account, The remaining 3% goes into the Medicare general fund. Finally, non-passive earned income is included when figuring your maximum allowed contribution to a tax deferred retirement account, such as a 401(k) or traditional IRA.
Rental income is passive income; meaning that you do not provide a service or product "on a recurring basis" to those that pay you that rental income. All you do is "sit there" and collect it. That's all. Non-passive rental income is reported on SCH E. This income is *not* subject to the additional 15.3% SE tax, since it's not earned income. Additionally, this type of income can *not* be included when figuring your maximum allowable contribution to a 401(k) or IRA (both traditional and ROTH).
So SCH C income is subject to the addtional 15.3% SE tax, While SCH E income is not.