We own a second home purchased about 5 years ago, which we plan to move into in a few years. In the meantime we are renting it out 100% of the time and making improvements and of performing course maintenance. We would like to be making a profit on the place, but almost never do. We do not employ a management firm, and so feel that we are actively engaged. 1) Does it make sense to call this a business? 2) when we hire a business to improve the place or perform maintenance, do we have to mess with form 1099-NEC? For example, in 2022 we paid a business to paint the exterior for about $6000. Thank you for your kind attention. - Paul
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You are not in the rental business so no need to file a Schedule C.
You are a landlord and report the rental income and expenses on a Schedule E. You do not provide a 1099-NEC to any company that provides a service on the rental. Nor do you need to provide a 1099-NEC to any independent contractor you hire to provide a service on the rental.
See this TurboTax support FAQ for entering rental income and expenses - https://ttlc.intuit.com/turbotax-support/en-us/help-article/import-export-data-files/enter-income-ex...
You are not in the rental business so no need to file a Schedule C.
You are a landlord and report the rental income and expenses on a Schedule E. You do not provide a 1099-NEC to any company that provides a service on the rental. Nor do you need to provide a 1099-NEC to any independent contractor you hire to provide a service on the rental.
See this TurboTax support FAQ for entering rental income and expenses - https://ttlc.intuit.com/turbotax-support/en-us/help-article/import-export-data-files/enter-income-ex...
Thank you so much. So right now, the income and expenses on this rental home appears under business income and expenses. I think that's the way I've filed since we bought the place. It is not clear to me how to change it to non-business personal investment? Or should I? Am I going to jail?😉 Probably. - Paul
Well, in my 2021 filinig it was on schedule E, not C. - Paul
@linyphia1515 wrote:
Well, in my 2021 filinig it was on schedule E, not C. - Paul
Were you reporting it on Schedule C prior to 2021? If not, then just continue to report the rental on Schedule E.
When I go to the forms view, it's going on Schedule E this year two, and there is a box checked saying it's not a business. I guess I'm OK. We had a loss this year which its not allowing us to deduct, I think because we earn to much overall. - Paul
Long term residential rental real estate is reported on SCH E. Note that it is not common for rental real estate to show a profit "on paper" at tax filing time. When you add up the rental deductions of mortgage interest, property taxes, property insurance and the depreciation you are required to take, those four items alone will usually exceed the total rental income received for the tax year. Add to that the other deductible rental expenses such as maintenance and repairs, and you're practically guaranteed to show a loss each and every year
Generally, once your rental losses get your taxable rental income to zero, that's it. Any remaining loss is just carried over to the next year. With each passing year your carry over losses grow. You can't actually use and "realize" those losses until you sell the property. If you convert the property to personal use that just suspends those losses and they remain "in limbo" so-to-speak, until you actually sell the property.
Now there is an exception that a fair number of landlords qualify for. If you qualify (and you very well may) then you can deduct a maximum of $25K of your excess losses from "other" ordinary income. With that, it's perfectly possible that you will not have carry over losses since all of your losses would be allowed first against taxable rental income, and then any remaining losses up to $25K against other ordinary income.
Thank you so much for your informative and thorough response. - Paul
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