Short-Term Rental – Schedule E or Schedule C?

[jjjarrell18]

Hello,

I’ve been receiving conflicting advice on whether to file my Airbnb income and expenses on Schedule E or C.

My wife and I have a cabin used exclusively for Airbnb.  It was rented for 184 days in 2022, with an average stay of 2.14 days.  We both actively participated in the operation of the rental.  I have read that these two criteria alone would allow us to use Schedule C.

However, I have also read that the above PLUS providing “substantial services” for guests are required to use Schedule C.  Speaking of which, “substantial services” are not all that clear.  We offer cleaning services, fresh linens, toiletries, food, coffee, wine, other drinks for each rental (both in between rentals and while guests are there upon request).  Guests have full use of grills, games, a fire pit, etc.  We provide guides and regularly field calls and questions for recommendations regarding local amenities.  We even decorate/set up the cabin for special occasions upon request (birthdays, and even marriage proposals believe it or not).  Does any of this qualify as a “substantial service”? 

With all of this in mind, would you suggest Schedule E or C?

Thank you for your help!

[MonikaK1 · Accepted solution]

Generally, you should report your Airbnb activity on Schedule C if the average rental period for the property is less than 7 days or if the average rental is less than 30 days, and you provide substantial services that are primarily for your tenant's convenience.

If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C. Substantial services don’t include the furnishing of heat and light, cleaning of public areas, trash collection, etc. 

Further discussion of “substantial services,” from IRS Pub. 334:

Trailer park owner: Rental income from a trailer park is subject to SE tax if you are a self-employed trailer park owner who provides trailer lots and facilities and substantial services for the convenience of your tenants.

You are generally considered to provide substantial services for tenants if they are primarily for the tenants' convenience and are not normally provided to maintain the lots in a condition for occupancy. Services are substantial if the compensation for the services makes up a material part of the tenants' rental payments.

Examples of services that are not normally provided for the tenants' convenience include supervising and maintaining a recreational hall provided by the park, distributing a monthly newsletter to tenants, operating a laundry facility, and helping tenants buy or sell their trailers.

Examples of services that are normally provided to maintain the lots in a condition for tenant occupancy include city sewerage, electrical connections, and roadways.

Hotels, boarding houses, and apartments: Rental income you receive for the use or occupancy of hotels, boarding houses, or apartment houses is subject to SE tax if you provide services for the occupants.

Generally, you are considered to provide services for the occupants if the services are primarily for their convenience and are not services normally provided with the rental of rooms for occupancy only. An example of a service that is not normally provided for the convenience of the occupants is maid service. However, providing heat and light, cleaning stairways and lobbies, and collecting trash are services normally provided for the occupants' convenience.

Schedule E is appropriate for rentals, with an average rental period of seven days or more, and you do not provide substantial services to the renters. 

Please see also this TurboTax tips article for Airbnb users.

[tagteam]

---

@jjjarrell18 wrote:

Does any of this qualify as a “substantial service”? 

---

What you described (e.g., guides, decorate/set up, food, coffee, wine, other drinks) does, indeed, appear to qualify as substantial services.

[xedd2kh]

So tagteam.   I have an airbnb with average rental about 2 days, but when I put in my data, turbo tax put it on schedule E  - didn't ask me.     How do I tell turbotax to move it from Schedule E to C? 

[MarilynG1]

You can delete all the info you entered in the Rental sections under Property Profile or Assets/Depreciation. 

If you have entered all income/expenses on Schedule E, make note of your net out.  Most rental properties have a loss each year, which the IRS doesn't question, and reduces their other taxable income.  One issue with vacation rental expenses is that users enter a number of  'personal days'  which can limit depreciation.  Unless you actually use the place yourself as a vacation spot (not just fixing up stuff), enter 0 for personal days. 

In Schedule C, you will enter your property as an Asset, report all your income and expenses, and pay Self-Employment Tax.  The IRS expects your Business to show a profit in average of two out of five years.  

Compare your tax situation with both scenarios.  Just because you can report vacation rentals on a Schedule C doesn't necessarily mean you should.  Many people report their vacation rentals on Schedule E.

Here's some info on 10 Tips for Airbnb, HomeAway Rentals and more discussion on Vacation Rentals on Sch E or Sch C?

[tagteam · Accepted solution]

Again, the test in this case is whether or not you provide significant services to your renters.

If so, which appears to be the case, then the rental should be reported on Schedule C. 

See https://www.irs.gov/instructions/i1040se#en_US_2023_publink24332td0e1083

Generally, rental real estate activity is reported on Schedule E even if it is also a trade or business activity; however, if you provided significant services to the renter, such as maid service, report the rental activity on Schedule C, not on Schedule E. Significant services do not include the furnishing of heat and light, cleaning of public areas, trash collection, or similar services.