rental income: Schedule C or E


J

John Kohl

My wife and I bought a condominium at a ski resort, which we
intend to rent out through the resort's short-term rental
office. The resort will issue us a 1099 for the rental
income. We expect to qualify under the "dwelling unit used
as home" rules since we'll use the unit for some days for
personal use.

We provide electricity, heat, water, phone, and cable TV.
The resort provides cleaning and linen services for renters
(essentially hotel-like maid services), and charges us a
commission (percentage of nightly room rate).

IRS Pub 527 (2002) says:

If you rent buildings, rooms, or apartments, and provide only
heat and light, trash collection, etc., you normally report your
rental income and expenses in Part I of Schedule E (Form 1040).
However, do not use that schedule to report a not-for-profit
activity. See Not Rented For Profit, earlier.

If you provide significant 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 (Form 1040), Profit or Loss From Business or Schedule
EZ, Net Profit From Business.

I don't know from the language & facts here whether my wife
and I are considered to provide the maid services, and thus
this income goes on Sch. C, or if we are only considered to
provide utilities (and the rental office provides the maid
service), and thus this income goes on Sch. E.

(Which is more advantageous to us?)
 
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D

D. Stussy

John said:
My wife and I bought a condominium at a ski resort, which we
intend to rent out through the resort's short-term rental
office. The resort will issue us a 1099 for the rental
income. We expect to qualify under the "dwelling unit used
as home" rules since we'll use the unit for some days for
personal use.

We provide electricity, heat, water, phone, and cable TV.
The resort provides cleaning and linen services for renters
(essentially hotel-like maid services), and charges us a
commission (percentage of nightly room rate).

IRS Pub 527 (2002) says:

If you rent buildings, rooms, or apartments, and provide only
heat and light, trash collection, etc., you normally report your
rental income and expenses in Part I of Schedule E (Form 1040).
However, do not use that schedule to report a not-for-profit
activity. See Not Rented For Profit, earlier.

If you provide significant 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 (Form 1040), Profit or Loss From Business or Schedule
EZ, Net Profit From Business.

I don't know from the language & facts here whether my wife
and I are considered to provide the maid services, and thus
this income goes on Sch. C, or if we are only considered to
provide utilities (and the rental office provides the maid
service), and thus this income goes on Sch. E.

(Which is more advantageous to us?)
If you meet the 14-day or less rule, then you use Schedule A
for your interest expense and property taxes, and get to
completely ignore the income. - IRC 280A(g)

Schedule C is for "hotel" arrangements. Schedule E is for
"apartment" or long term lease situations. That's what the
publication is getting at. In either of those cases, you
have to include the income, but (except for interest and
property taxes) cannot take a loss. Excess expenses carry
forward in a manner similar to that of Form 8829 (the only
difference is that if you use Schedule E, you cannot
actually file that form with your return).
 
C

Christopher Green

John Kohl said:
My wife and I bought a condominium at a ski resort, which we
intend to rent out through the resort's short-term rental
office....
We provide electricity, heat, water, phone, and cable TV.
The resort provides cleaning and linen services for renters
(essentially hotel-like maid services), and charges us a
commission (percentage of nightly room rate)....
In my lay opinion, it's Schedule E. The difference is the
difference between income derived from your property (goes
on E) and income derived from your labor (goes on C). You
aren't providing any of the services; you're paying the
resort to provide them -- and you're not even paying them
for their labor, you're paying a commission on the rate. The
sort of person who reports this kind of income on Schedule C
is a hotel owner, who provides these services directly,
using his own labor or the labor of his employees or
contractor.
 
G

Gene E. Utterback, EA

John Kohl said:
My wife and I bought a condominium at a ski resort, which we
intend to rent out through the resort's short-term rental
office. The resort will issue us a 1099 for the rental
income. We expect to qualify under the "dwelling unit used
as home" rules since we'll use the unit for some days for
personal use.

We provide electricity, heat, water, phone, and cable TV.
The resort provides cleaning and linen services for renters
(essentially hotel-like maid services), and charges us a
commission (percentage of nightly room rate).

IRS Pub 527 (2002) says:

If you rent buildings, rooms, or apartments, and provide only
heat and light, trash collection, etc., you normally report your
rental income and expenses in Part I of Schedule E (Form 1040).
However, do not use that schedule to report a not-for-profit
activity. See Not Rented For Profit, earlier.

If you provide significant 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 (Form 1040), Profit or Loss From Business or Schedule
EZ, Net Profit From Business.

I don't know from the language & facts here whether my wife
and I are considered to provide the maid services, and thus
this income goes on Sch. C, or if we are only considered to
provide utilities (and the rental office provides the maid
service), and thus this income goes on Sch. E.

(Which is more advantageous to us?)
The starting point is simple - what is the AVERAGE rental
period? If it is 7 days or less you MUST use Schedule C,
more than 7 days and you get to use Schedule E. The math
isn't hard.

BTW - if you find that the average rental period is 7 days
or less RUN, do not walk, to a qualified pro that
understands passive loss activity rules. Schedule C passive
rentals are not for the uninitiated.

Good luck,
Gene E. Utterback, EA
 
M

MAT1040X

The starting point is simple - what is the AVERAGE rental
period? If it is 7 days or less you MUST use Schedule C,
more than 7 days and you get to use Schedule E. The math
isn't hard.

BTW - if you find that the average rental period is 7 days
or less RUN, do not walk, to a qualified pro that
understands passive loss activity rules. Schedule C passive
rentals are not for the uninitiated.
Gene - Could you elaborate on this a little. Is there a
code section or regulation that spells out the "average 7
day rental" that requires special treatment? Thanks.
 
D

Dave Woods, EA

The starting point is simple - what is the AVERAGE rental
Do the passive loss activity rules apply to the operation of
a small motel?
They apply to ALL for profit activities.
Is motel operation considered short-term
rental activity or a business activity?
I would suspect the average stay at a motel is less than
seven days.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.
 
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D

Dave Woods, EA

The starting point is simple - what is the AVERAGE rental
Gene - Could you elaborate on this a little. Is there a
code section or regulation that spells out the "average 7
day rental" that requires special treatment? Thanks.
Reg 1.469-1T(e) (3) (ii) (A) if not materially involved in
the activity. It specifically is NOT a rental activity at
that point. Therefore it is a trade or business and a
passive one because you're not materially involved.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.
 
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G

Gene E. Utterback, EA

The starting point is simple - what is the AVERAGE rental
Gene - Could you elaborate on this a little. Is there a
code section or regulation that spells out the "average 7
day rental" that requires special treatment? Thanks.

Start with IRC 469(c0(7) then check:
Treasury Regulation Section 1.469-1T(e)(3)(ii)(A)
Toups, T.C. Memo 1993-359
Chapin, T. C. memo 1996-56
Mordkin, T. C. Memo 1996-187
Madler, T. C. Memo 1998-112
Pohoski, T. C. Memo 1998-17

Gene E. Utterback, EA
 

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