Schedule E: 3 - Vacation/Short-Term Rental selection

[limekiln]

I have two rental properties that could not be characterized as hotel or hotel-like rentals, and so I used Schedule E.  I am confused as to what class of rental property would be listed a Schedule E and also be defined as "Vacation/Short-Term Rental", since surely this latter characterization of the rental means it should not be in Schedule E but on Schedule C?

Many thanks in advance if anyone has this straight in their head!

regards

[Anonymous_ · Accepted solution]

If that classification meant the property should be reported on Schedule C, it would not be listed as an option on Schedule E. 

Schedule C is for rental real estate owned by a real estate dealer (who owns and sells real estate in the ordinary course of business) and for those who provide significant and substantial services to their renters (i.e., as in operating a hotel, or in the same manner as one).

For the purposes of the program, there is little (or no) impact on whether you select that classification or single-family home; it is the fair rental and personal days that matter.

[limekiln]

Thank you very much. 

Since you bring it up, how is the fair days and person days used?  Let's say the rental is available for the full 365 days in the year and there is 100 days of rental and 200 days of personal use.  What % of the expenses is determined to offset against income?

Once again, many thanks for your clear and speedy reply.

[Anonymous_]

There are two methods for allocating mortgage interest and property taxes which, actually, TurboTax provides in the program's guidance.

The Tax Court Method vs The IRS Method

The Tax Court allows a different allocation formula for interest and taxes than the one the IRS describes in Publication 527. Under the Tax Court formula, interest and taxes are allocated on a daily basis, that is, the rental portion is the ratio of days rented to the number of days in the year. Under the IRS formula, interest and taxes are allocated in the ratio of days rented to days used. The Tax Court ratio results in a smaller amount of interest and taxes allocated to the rental property.

[Anonymous_]

Additionally, some expenses can be allocated exclusively to rental use, such as advertising, management fees and commissions.

Otherwise, with your figures, you would have a two-thirds allocation to personal use and one-third allocated to rental use.