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Level 3
posted May 19, 2022 6:39:11 AM

Which schedule? E or C?

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?

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10 Replies
Level 15
May 19, 2022 6:49:20 AM

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.

Level 15
May 19, 2022 6:51:45 AM


@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.  


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

Level 3
May 19, 2022 6:55:46 AM

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

Level 15
May 19, 2022 7:29:01 AM

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

Level 3
May 19, 2022 7:31:21 AM

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

Level 3
May 19, 2022 7:32:14 AM

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

Level 15
May 19, 2022 7:33:54 AM

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.

Level 15
May 19, 2022 7:43:54 AM

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.

Level 15
May 19, 2022 8:04:41 AM

The Regulations clarify this point.

 

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

Level 15
May 19, 2022 9:55:27 AM

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.