Transition Rental Property from Schedule E to Schedule C

[szhermosa]

My wife and I have 5 rental properties and currently report them on Schedule E.  This year we retired and took on the management of the properties ourselves and meet the Materially Participation tests: > 750 hours and > 50% of our working hours.  I made the selection adjustments in TurboTax and thought (probably falsely) that these 5 rentals would be aggregated and consolidated into a single Schedule C.  Am I missing something?  Or do I delete the 5 rentals from the Sch E Rental section and aggregate myself into a Schedule C?  If the latter, do I need to add a statement of fact so that the IRS knows what I am doing?  I was hoping they would aggregate to Schedule C so that I could then take a SEP IRA contribution against the net income.

[tagteam]

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@szhermosa wrote:

Am I missing something? 

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Yes, you are missing something.

Income and expenses from residential rental real estate is reported on Schedule E, regardless of the level of participation, unless you are a real estate dealer or provide significant services to your renters. 

See https://www.irs.gov/instructions/i1040se#en_US_2023_publink24332td0e1083

Generally, rental real estate activity is reported on Schedule E even if it is also a trade or business activity; however, if you provided significant services to the renter, such as maid service, report the rental activity on Schedule C, not on Schedule E. Significant services do not include the furnishing of heat and light, cleaning of public areas, trash collection, or similar services.

If you were a real estate dealer, include only the rent received from real estate (including personal property leased with this real estate) you held for the primary purpose of renting to produce income. Do not use Schedule E to report income and expenses from rentals of real estate you held for sale to customers in the ordinary course of your business as a real estate dealer. Instead, use Schedule C for those rentals.