STR Business Sch E & Sch C questions

[Theodore Smith]

Looking for some insight, and I realize this may be a bit complicated for this forum, but as I am not a tax professional it may be an easy answer as well. Some basics…

My wife and I own a property with 3 STR on the property along with a garage. They are all separate structures and are rented out exclusively as STR. We also live on property, in the garage in the summer and between 1 of the others 3 houses in the off season. We file as a Qualified Joint Venture, so sole-proprietor for each of us. All P&L split down the middle as we are both active in the business.

We file all of our STR income on Sch E along with a portion of the expenses that would be attributed to a particular dwelling. We also file a Sch C to expense "business" level expenses such as administrative costs, landscaping costs, utilities that can't directly tied to a particular dwelling…etc. Since the sch C never has income, it always shows a loss. This is where my question comes in. Did I not read somewhere that you can only report a loss on a sch C for X amount of years out of 5 before the IRS no longer recognizes the activity as a business but as a hobby? Or, is the sch C somehow tied to our sch E and therefore not subject to that rule?

Again, not sure if it all makes sense, but would love some insight.

Thanks

[Ashish Acharya]

You cannot file Sch C the way you described your activity. The overhead costs should be allocated to the properties.