I am new to business taxes. I've dealt with Sch E in the past, but this is very different.
1. In December, 2019, we bought a property in Puerto Rico with 5 short term rental units on it.
2. We rented one unit for 1 week in March of 2020 and then went into Covid shutdown.
3. We have been using the time to remodel (it was in rough shape when we bought it) all the units and bring everything up to code so we've spent around 35k in repairs, remodeling, utilties, travel expenses, etc for 2020.
4. It is not our primary residence, but 1 of the units is for our personal use. We "lived" there from March 2020 to August 2020 because we went into lockdown while we were there making decisions on my teaching spring break. We were able to work remotely from the property (new car sales and teaching) while we actively worked on the property.
My assumption is that we need to file Schedule C because this is not passive rental income and we treat this as a business. We have a website, business cards, etc. However, I must have done something wrong because Turbo Tax has a Sch E for me.
Thanks in advance for any guidance.
Maria Gonzalez
Usually, rental real estate is used in a profit seeking manner. It is entered on Schedule E. In order, for it to be Schedule C, you would have to offer services along with the rental of the property, such as a bed an breakfast or a motel would.
You will have to indicate that this is a multi-family/multi-unit, at least for 2020, so you can segregate your personal expenses from the business portion.
You can't take any expenses for the time period when it was not available to be rented, due to improvements. Your improvements will be added to the basis of the property and depreciated.
Thank you, Coleen. Since I posted the question I found the information about providing a service so I'll stick with Sch E. I also read that the time we spent there working on the property doesn't count as personal time (we can easily prove the huge amount of work we did).
My last question is about what you said in your response. "You will have to indicate that this is a multi-family/multi-unit, at least for 2020, so you can segregate your personal expenses from the business portion."
I understand about applying a percentage so that I'm not deducting expenses for our personal residence on the Sch E, but I didn't see a place to indicate that this is a multi-unit property. Do you know how?
Thanks again,
Maria Gonzalez
Yes, you are asked these questions at the beginning when you set up the property.
Ahh, yes, I had forgotten about that back when I set it up. However, I can't check multi-family, because that is for duplexes, apartment buildings, etc. We fall under the vacation rental category because we don't have long-term tenants.
Thanks again for your help,
Maria Gonzalez