Which schedule? E or C?

[vgentry]

I am a Realtor and I own rental properties. I advertise both my rentals and my real estate services using flyers, business cards, etc. typically with office depot or somewhere like that. Also I show client houses in the same areas where I have my rentals. While in town, I drop by the rental properties to check up on them.

Where do I write off the advertising and mileage? Schedule E (landlord/rentals) or Schedule C (real estate)?

A CPA told me that schedule E is passive and that you pay FICA on schedule C earnings so it’s best to reduce the adjusted income on schedule C.  I don't understand all that so can someone explain it in a bit more detail?

[Anonymous_]

I am presuming that you file a Schedule C to report the income from your services as a real estate agent or broker and a Schedule E for your rental properties.

If the foregoing is the case, then you will have to allocate the expenses (advertising and mileage) between Schedule C and Schedule E, in accordance with what is attributable to each.

[Anonymous_]

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@vgentry wrote:

A CPA told me that schedule E is passive and that you pay FICA on schedule C earnings so it’s best to reduce the adjusted income on schedule C.  

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Your CPA is correct, but you cannot, deduct expenses that are attributable to your rentals, such as advertising for tenants, on Schedule C. 

[vgentry]

@Anonymous_  how do I split it? While at office depot I ordered business cards for real estate and flyers for my rental.

[Anonymous_]

In that example, you would deduct the cost of the flyers on Schedule E and the cost of the business cards on Schedule C.

[vgentry]

@Anonymous_ I will split them up. Next time I will have the store ring them up separately with different receipts.

[vgentry]

@Anonymous_ What is the tax rate for passive schedule E vs the tax rate for schedule C?

[Anonymous_]

Your marginal tax rate does not vary. 

Both net rental income and net business income are subject to ordinary income tax rates, but rental income is not subject to self-employment tax.

[TomD8]

An important distinction:

Schedule C income is subject to the self-employment tax.

Schedule E income is normally excluded from the self-employment tax, but the exclusion does not apply if the rentals are received in the course of a trade or business of a real estate dealer.

https://www.law.cornell.edu/uscode/text/26/1402

This is a complicated subject and you should rely on the services of a tax professional.

[Anonymous_]

The Regulations clarify this point.

See https://www.law.cornell.edu/cfr/text/26/1.1402(a)-4

[Mike9241]

and mileage would be split 50/50. for the trip to the store. since it's dependent on the mileage not the cost of the items.