Reporting property on leased land.

[cmg1]

In 2010, I financed and built an aircraft hangar on land leased from the county airport. Turbo Tax NEVER asked any questions about owned vs leased land, so I have been using schedule E for income/expense, P/L, and 39-year depreciation. I have had to use either the personal % and/or Vacation Home Use on the sched E worksheet to account for my own use of the property (a huge mess). It also involved the Passive loss limitations and vacation home carryovers. I have owned and sold some rental houses over the past few years, so it all seemed to fit.

 I just realized that the city has been taxing the hangar as “Personal Property” every year instead of real estate taxes. That led me to digging and it seems that I should have been using Sched C for personal property instead of E for real estate all of these years. Can I just change to Sched C for 2022, or are there a whole lot of gymnastics to go through like amended returns and different depreciation to clean it up?

[Vanessa A]

Why are you changing? Schedule C is only used for business expenses.  So you would never use it for personal property.  Personal property expenses are not deductible other than property taxes if you itemized, then they would show up on Schedule A. 

Schedule E is for investment property. If you were renting out the hanger to others, then it would be reported on Schedule E.  If you were flying people around and giving tours or something similar, then you would report it on Schedule C. 

Whether the land is owned or leased doesn't impact the deductibility of the hanger.  Business or personal use does. 

What is this hanger for? Personal use or is it a business?

[cmg1]

I rent out some of the space in the hangar to other airplane owners, therfore I have always believed that it is a business.  I fully expect to sell it for more than it cost me to build it. Since the hangar is on leased land, everything I read implies that it is not treated as real estate, it is personal property like a truck or manufacturing machine, etc. and goes on goes on Sched C. 

[PattiF]

There are a whole lot of gymnastics to change your business from a rental to a business. You can amend the last three years to document the change. 

Your unusual situation would best be served by consulting a CPA to help you enter the change correctly with the IRS. Find a CPA familiar with business returns to help.

Please see this TurboTax Tip for finding the right CPA for you.

@cmg