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IRS Classification for landlord: Business Owner or Investor

burgerguy14 — Tue, 24 Feb 2026 07:19:43 GMT

How would the IRS classify me? I'd prefer to be treated as a business owner.

I am a landlord of 2 properties. A condo and a multifamily building.

I do all the following myself: lease negotiations, repairs (major and minor), trash out, etc.

My tenants are fairly stable. 2+years tenancy.

I don't know if this matters: but I gut renovated the condo and am currently gut renovating one of the units in the multi-family myself. I'm basically a contractor - but I only work for myself. 40 hours a week x 50 weeks a year.

I've read a book titled "Every Landlord's Tax Deduction Guide" by Stephen Fishman. Based on the excerpts below, I feel it could be argued that I am a Business owner. I understand the IRS doesn't follow Mr. Fishman's book for classification (😀), but he is providing some guidance on the issue.

Here's an excerpt from his book on the issue:

Are You a Business Owner or an Investor?

What’s the difference between an investor and a business owner? It’s

not their motivation—they both want to earn a profit. The difference

is that business owners earn their profits by actively running a business,

either themselves or with the help of others they hire, such as managers.

Investors are passive—they put their money in someone else’s business

and hope their investment will increase in value due to the other person’s

efforts. Or, they buy an item like land or gold, and then sit and wait for it

to increase in value.

Owning rental property qualifies as a business if you do it to earn a

profit and work at it regularly, systematically, and continuously. (Alvary

v. United States, 302 F.2d 790 (2d Cir. 1962).)

Example : Edwin Curphey, a dermatologist, owned six rental

properties in Hawaii. He converted a bedroom in his home into an

office for his real estate activities. Curphey personally managed his

rentals, which included seeking new tenants, supplying furnishings,

and cleaning and otherwise preparing the units for new tenants.

The court held that these activities were sufficiently systematic

and continuous to place him in the business of real estate rental.

(Curphey v. Comm’r., 73 T.C. 766 (1980).)

However, you don’t have to do all the work yourself: You can hire

a manager to help you and still qualify as a business as long as the

manager or other person you hire works regularly, systematically, and

continuously.

Example : Gilford, her two sisters, and other relatives jointly owned

eight apartment buildings in Manhattan. They hired a real estate

agent to manage the properties and pay each family member his or

her share of the net income. Gilford was found to be in business

even though she spent little or no time managing the buildings.

The court reasoned that the ownership and management of the

buildings was a business because it required considerable time and

effort by the real estate agent over several years. Because the agent

acted for Gilford and was ultimately under her control, Gilford was

in business through her agent. (Gilford v. Comm’r., 201 F.2d 735

(2d Cir. 1953).)

There is no specific number of rental properties or rental units you

must own for your rental activity to qualify as a business. In one case,

a married couple was found to be engaged in business even though all

they owned was a 25% time-share interest in two condominium units.

And, the actual work of renting out the units and keeping them in repair

was performed by a management company that acted as their agent.

(Murtaugh v. Comm’r., T.C. Memo 1997-319.)

Re: IRS Classification for landlord: Business Owner or Investor

Critter-3 — Sat, 23 Sep 2023 16:32:35 GMT

Generally, Schedule E should be used to report rental income/loss.

According to the IRS: "Generally, Schedule C is used when you provide substantial services [i.e. hotel like services] in conjunction with the property or the rental is part of a trade or business as a real estate dealer."

Schedule C:

Advantage: Losses reported on a Schedule C are not limited by the Passive Activity Loss Rules.
Disadvantage: Income on Schedule C is subject to Self Employment Taxes.

Schedule E:

If you file a Schedule E, you may be able to deduct up to $25,000 of losses from a Schedule E if you Actively Participate in the rentals. The IRS defines Active Participation as:

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.

For more information please see: IRS Publication 527

Re: IRS Classification for landlord: Business Owner or Investor

burgerguy14 — Sat, 23 Sep 2023 20:06:23 GMT

Thanks for the explanation @Critter-3 .

Just to clarify you are saying to be considered a Business Owner, I'd have to meet the qualifications to file a Schedule C? I am certainly not providing hotel like services.

Thank you

Re: IRS Classification for landlord: Business Owner or Investor

Critter-3 — Sat, 23 Sep 2023 20:18:33 GMT

lf you really want to call yourself a business and pay SE taxes on what should be passive income then have at it ... if you are ever audited then you can have this discussion with them.

Now if your real goal is to get SS benefit credits by putting this income on the Sch C then you have another option. The rental business can HIRE your separate Sch C business and deduct the money they pay you (and issue a 1099 to that separate Sch C business) on the Sch E and the income & expenses to complete this work could be reported on the Sch C.

Re: IRS Classification for landlord: Business Owner or Investor

burgerguy14 — Sat, 23 Sep 2023 20:47:20 GMT

@Critter-3 The reason I'd like the business classification is b/c it allows me to deduct home office expenses and get Section 179 expensing.

Re: IRS Classification for landlord: Business Owner or Investor

Critter-3 — Sat, 23 Sep 2023 20:55:54 GMT

I told you the way you could possibly get the home office deduction ... have the rentals pay a separate business for managing the properties and making repairs. That way you could get the results you want ... I highly recommend you talk to a local tax pro &/or tax attorney to discuss your legal options.

Re: IRS Classification for landlord: Business Owner or Investor

burgerguy14 — Sat, 23 Sep 2023 23:06:01 GMT

I'll stick with Schedule E. I do not "provide substantial services [i.e. hotel like services] ".

Thanks @Critter-3 .