HH Taxes: 1040 E or 1040 C?

Question

Hello fellow househackers!

Two questions for the group in celebration of tax holiday cheer.

1. Does your tax preparer have you use a 1040 schedule E or 1040 Schedule C?

2. Which portion of the tax code do they reference / how are they interpreting it?

I promise i'm not getting all my tax advice on social media... but my tax advisor hasn't helped prepare for a HH yet and he's flip-flopped between Sch E and Sch C enough to make me question it... His final determination (3rd choice) was Schedule E, although this is not what i expected and is not nearly as beneficial when it comes to writing off expenses towards my income / lowering AGI as schedule C. Just wondering if anyone out there is filing with someone who has more experience / precedent in this situation. This will help me decide if i need to find another accountant before tax day.

TYIA!!

Benjamin Weinhart · Answer

With the rental being part of your primary residence, a majority of those activities such as lawncare and maintenance would just count as personal activities anyway. There is certainly a case such as certain STR activities which may qualify for being able to be considered active income, but it's somewhat difficult to achieve this or material participation status where I think you're currently at. It's good to note as well that you're not "locked in" from using one or the other, just simply how the activity was during the year.

I will also state that you don't get a choice in the matter for how it's reported for 2023. Unless my assessment of your situation is wrong based on what you've provided, you will be required to utilize Schedule E, and cannot classify this under Schedule C. Tax compliance is rarely a "choose your own adventure" type of deal if the tax year has already closed. This is why tax planning is so important to help avoid some of these issues before they become issues.

Benjamin Weinhart · Answer

Hi Michael,

Great question, your tax advisor is correct with their final determination of reporting the activity on Schedule E. Since this is not an actively managed property, you're unable to take the deduction against your W2 (or other) income in the current year. Depending on your definition of house hack, these excess losses may be able to be carried forward as passive losses on form 8582 (not enough information to determine this part, would need additional info).

I will mention as well that if you choose to switch to another accountant who more specializes in real estate, being that it's April, any good CPA will automatically want you to file an extension. If you're ok with this, it sounds as if you may be starting to outgrow your current tax advisor so it may not be a bad idea to seek someone else out either this year or next year. You will likely still owe their fee for the amount of work they've already done if you choose this year however.

Account Closed · Answer

Happy to help :D

Account Closed · Answer

Regarding your first question: the choice between Schedule E and Schedule C can significantly impact the taxation of your income, particularly in scenarios involving rental properties or self-employment. It's crucial to align this decision with the nature of your income sources and their respective tax treatments. Schedule E typically caters to rental income and certain types of passive income, while Schedule C is tailored for reporting profits and losses from a business or self-employment. Real estate-focused accountants can help you here especially if your current accountant is being wishy-washy. Best of luck on your journey!

Account Closed · Answer

• The decision to use Schedule E or Schedule C for reporting rental income from house hacking can depend on various factors, including the nature of your rental activities and how you've structured your rental business.Schedule E is typically used to report rental real estate income and expenses for individuals who own rental properties as investments or passive income sources.Schedule C, on the other hand, is used for reporting income and expenses from self-employment or business activities, including activities that are considered to be actively managed.
• Schedule E is typically used to report rental real estate income and expenses for individuals who own rental properties as investments or passive income sources.
• Schedule C, on the other hand, is used for reporting income and expenses from self-employment or business activities, including activities that are considered to be actively managed.
• The interpretation of the tax code and the determination of which schedule to use can vary based on individual circumstances and the tax preparer's expertise.Your tax preparer may reference relevant sections of the IRS tax code, such as IRS Publication 527 (Residential Rental Property), IRS Publication 334 (Tax Guide for Small Business), or other applicable publications and regulations.Factors that might influence the decision include the level of involvement in managing the rental property, the intent to generate passive income versus active business income, and the structure of your rental business (e.g., sole proprietorship, partnership, LLC).
• Your tax preparer may reference relevant sections of the IRS tax code, such as IRS Publication 527 (Residential Rental Property), IRS Publication 334 (Tax Guide for Small Business), or other applicable publications and regulations.
• Factors that might influence the decision include the level of involvement in managing the rental property, the intent to generate passive income versus active business income, and the structure of your rental business (e.g., sole proprietorship, partnership, LLC).

• Schedule E is typically used to report rental real estate income and expenses for individuals who own rental properties as investments or passive income sources.
• Schedule C, on the other hand, is used for reporting income and expenses from self-employment or business activities, including activities that are considered to be actively managed.

• Your tax preparer may reference relevant sections of the IRS tax code, such as IRS Publication 527 (Residential Rental Property), IRS Publication 334 (Tax Guide for Small Business), or other applicable publications and regulations.
• Factors that might influence the decision include the level of involvement in managing the rental property, the intent to generate passive income versus active business income, and the structure of your rental business (e.g., sole proprietorship, partnership, LLC).

Ultimately, it's essential to work with a tax advisor or accountant who understands your specific situation, goals, and the nuances of rental property taxation. They should be able to provide personalized advice and ensure compliance with IRS regulations while optimizing your tax strategy. If you're unsure about your current tax preparer's expertise in this area, it may be worthwhile to seek a second opinion or find a tax advisor with more experience in rental property taxation and house hacking scenarios.

Basit Siddiqi · Answer

Rental activity is on schedule E.However, your accountant should be providing you assurance that he is doing things correctly. It seems like he is not doing so.

Benjamin Weinhart · Answer

Hi Michael, I'd be happy to further discuss. I've sent you a connection request on BP

Michael Hardler · Answer

Thank you very much! Would love to connect to discuss further and learn more about you / your business scope if you are licensed as a CPA in MN / would be interested.

If not, thank you regardless!

HH Taxes: 1040 E or 1040 C?

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