Schedule C or E for vacation rental.

[tada]

We have two properties that we rent out.  One is a long term rental that we provide just the house and some basic utilities.  That sounds like schedule E.  But we have a short term vacation rental condo that we provide furnishings, utilities, linens, etc.  But we bought it in October and had no income from it for the remaining months of 2016.  But it has incurred expenses.  Do I use schedule C or E for the vacation rental condo?

[PatriciaV · Accepted solution]

Yes, if the vacation rental condo was held out for rent (even if you had no rental income), you would include the property expenses on your tax return. (See IRS Pub 527: "Vacant rental property")

Regarding Schedule C versus Schedule E:

IRS Pub 527 states "If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, report your rental income and expenses on Schedule C (Form 1040). Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc." 

This is interpreted as running a hotel-like business, with tenant services. If you rent a furnished condo (with kitchen items and linen, for instance), you are not necessarily running a hotel. But if you change the linen and/or provide maid services during the tenant's stay, then this could be considered running a hotel, and the activity should be reported on Schedule C.

If you believe you are not running a hotel-like business, the vacation condo rental may be reported on Schedule E.

The easiest way to find either schedule in TurboTax Online is to go to My Account >> Tools >> Topic Search. Type in "schedule e" or "schedule c", click the topic in the drop-down list, then click "Go." This will take you directly to the start of this section.

[jjrlaw-joe]

Yes but if your average period of rental is 7 days or less it is not a "rental activity". The "substantial services" standard comes into play when your average period of rental is 30 days or less.

[nutbrain]

I purchased a condo in vacation area through a 1031 exchange.  To maintain business use of the property, I elected to rent the condo using a management company that contracts with the HOA. I am not required to rent the unit as an owner, nor am I required to use the company associated with the HOA to rent or lease the property. Rentals are restricted to less than 30 days, however most guests/renters stay less than 7 days. The management company gets a percentage of the net rents after expenses to advertise, take rental information, collect rent, set fees, clean, do some basic repairs under $200 without need for owner approval, provide linen and towels and  other guest services for renters of the property.  I'm being careful to only visit the property once a month to make sure it is being maintained and cleaned well, and to do repairs and cleaning that the management company has not done. (learned my lesson not to be hands off due to bad prior experience with a management co. who let things go.)  Will use for personal reasons no more than 14 days or less than 10% of days rented per year to keep this from being a second home/personal use. My question is, am I now in the vacation rental/hotel business with a schedule C? rather than using schedule E as I did for the single family home I rented before?  What is the business code for schedule C if so. Do I need to 1099 the management company for the services it provides to me?  Thanks.

[KittyM2]

Rentl properties use Schedule E to report income and expenses. Businesses use Schedule C.

Generally, Schedule C is used when you provide substantial services (such as a hotel or a Bed and Breakfast) in conjunction with the property or the rental is part of a trade or business as a real estate dealer. 

Active participation:  You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions.

[Carl]

I elected to rent the condo using a management company that contracts with the HOA. I am not required to rent the unit as an owner, nor am I required to use the company associated with the HOA to rent or lease the property.

I think you are confused by the "provide substantial services that are directly beneficial to the tenant". That does not mean that you personally have to change linens, clean the bathroom, etc. If you paid a management company to provide these services, then *you* *personally* provided those services - even though it was through a third party.

[AmeliesUncle]

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@jjrlaw-joe wrote:
Yes but if your average period of rental is 7 days or less it is not a "rental activity". The "substantial services" standard comes into play when your average period of rental is 30 days or less.

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I realize this is an older comment, but I wanted to address it for any future readers:

That comment/rule is for determine if it is a rental for purposes of the Passive Loss Rules.  Short term rentals ARE still a "rental activity" for other purposes.

The difference between Schedule E and Schedule C is for Self Employment taxes.  That determination is based on if "services" are provided or not.  It doesn't directly have anything to do with length of stay (although short-term stays often increase the probability that "services" will be provided).

Unfortunately, "services" can be a gray area at times, but providing maid service or meals are two clear-cut examples that ARE "services" (which would put in on Schedule C).

[Carl]

One thing that is not a service directly benificial to the tenant (as far as the IRS is concerned) would be lawn care. Some rentals out there include that in the rent. But the IRS does not consider that a service directly benificial to the tenant. One reason is because if the property were to sit empty for several months (like one near a ski lodge during the off season) you're still going to cut the grass and maintain the lawn during that time. It's still a bonifide rental expense on SCH E though.

[jstew]

Hi -- I've been hitting my head against this exact issue for quite some time now (ie, if I run a less-than-7-day average rental with no substantial services out of my home do I file sched C or E and do I pay SE tax?) and I seem to be getting at the root of it with your comment, @AmeliesUncle:

That comment/rule is for determine if it is a rental for purposes of the Passive Loss Rules.  Short term rentals ARE still a "rental activity" for other purposes.

To be clear, the rental definition applied to passive loss rules in pubs 925/8582 (IRC 469) that states a rental on average 7 days or less is considered a business DOES NOT apply to determining whether the rental is a "business" or a "rental" for Sched E vs C purposes? And IRC 1402, which excludes rentals from being subject to self employment tax, would apply to the short term rental, as long as no substantial services are rendered?

I'm pretty sure that's what you're saying here, and I've found that interpretation elsewhere online as well (https://www.taxprotalk.com/forums/viewtopic.php?f=8&t=5504&p=55688&hilit=airbnb#p55688). What I REALLY want to know is what's the basis for saying the definition doesn't carry over? Is there a statement somewhere from the IRS about this specific definition, or in general that definitions only apply within certain sections of the code...? There is so much confusion online and the best way to be sure is to ground it in actual code/pubs/case law... but I'm a total novice when it comes to taxes, so I don't really know how to track that down!

[julesnh]

Similar question, purchased vacation house in October, 2019, it had been rented previously and I was credited for three days rental by the management company, but received no income for those days until January, 2020.  I had a number of expenses in searching for and acquiring the property, and stayed in that property for about a week before returning the status to available for rent to the management company. (I have successfully rented this property for the bulk of the peak rental season of 4 months in 2020).  

Completed schedule E in Turbo Tax premier desktop, but received error message that I cannot submit a schedule E if I had less than 15 days of rental (in 2019).  I recognize I will not receive a deduction due to no offsetting income in 2019, but I want to document that loss for carryover to 2020.  I have submitted an extension request and paid outstanding tax due, but want to get a correct answer and file soon.  I can see no mention in the IRS documents about the 15 day rental requirement.

[AmeliesUncle]

@julesnh   Did you use the home for personal purposes?  If so, it probably qualifies as a "Residence" for you.  When you rent out your Residence for less than 15 days, the rental income and expenses are not included on your tax return.

[julesnh]

additional questions (related).   House was available for rental for over two months with no takers (late fall, shore side property).  Does that have any impact. Also, I invested additional funds to update decor and household amenities (furniture, wall pictures, kitchenware) primarily to improve rental prospects - and that has shown up.  Also had moderate expenses in purchasing the home (travel to area, hotel rental while looking at properties, legal fees to purchase house, prepaid insurance for a whole year (9 months in 2020 paid in 2019), points on mortgage that was sold to another bank in  2019).  When I prepared Schedule E, I included these as single year expenses, hoping to rollover loss to 2020.  ANY thoughts on how to get some tax relief in 2020 or beyond based on these expenditures in 2019?  (I've also maxed out property taxes and mortgage interest on property not rented).  Does schedule C offer any opportunites?

[julesnh]

And- thanks again for your reply and help

[AmeliesUncle]

As I asked before, did you use the home for personal purposes?

[DiddlyD]

This is the best clarification yet and is in sync with the information I am finding else where too.  If you are operating like a Hotel providing and charging for room service, daily/weekly cleaning service, Laundry service/linen service, transportation in other words real personal services, then you report your vacation rental of Schedule C.  

I have a "long term" vacation rental (30 days or more-extended stay) which is turnkey as in fully furnished including dishes etc,  utilities and Wifi/cable amenities.  I DO NOT DO ANYTHING BUT MAKE A REPAIR REQUEST DURING THEIR OCCUPANCY (which can be a month or longer) LIKE ANY ORDINARY RENTAL.

I will have to put the new 1099-K I will no doubt recieive to the side because I report on Schedule E not C.  I guess well see what type of chaos this creates for IRS and Schedule E tax filers.  You do not use the latest Rent payment platforms to pay rental expenses or refund Security deposits to offset the additional income the 1099-K will include based on non reportable Refundable Deposits. It's a one way transaction to only facilitate renters payments to landlords.