Schedule E vs. Schedule C - Rental Business

[Jason Schatz]

Happy New Year All -

So one of my goals for 2019 is to get my book keeping much more organized, and while doing that I have a question I thought I would throw out to those more experienced than I. 

5 years ago I left my full-time salary job to pursue self-employment as a home contractor as well as run our small portfolio (8 units) of rental properties.  For those 5 years, I reported my contracting income/expenses on my schedule C and our rental income/expenses on schedule E. 

I have recently decided - thanks in large part to bigger pockets forums & podcasts - to focus 100% of my time on our real estate portfolio — managing, maintaining, and purchasing more to reach our goals.  I no longer plan on taking any jobs for clients outside of this.

My question comes in regards to how I should set up my bookkeeping and plans for the upcoming year — since I don’t plan on receiving any outside income through my contracting business and my full-time job wil be real estate, would it make more sense to shift my rental income/expenses to a schedule C business? I understand that it would then be subject to the self-employment tax...   I have trucks/tools/supplies etc that I have been including as expenses on my contracting business in the past, but considering that I don’t expect to be reporting any business income, if I filed taxes the way I have been I don’t think the IRS would see my business as operating to produce a profit. 

Just for info, all of our properties are currently held in our own name and my contracting business is under and LLC. Holding the properties in an LLC vs. personal is another decision I will be making but not necessarily the focus of this post.

Any thoughts greatly appreciated.  Thank you!

[Ashish Acharya]

Originally posted by @Jason Schatz:

Happy New Year All -

So one of my goals for 2019 is to get my book keeping much more organized, and while doing that I have a question I thought I would throw out to those more experienced than I. 

5 years ago I left my full-time salary job to pursue self-employment as a home contractor as well as run our small portfolio (8 units) of rental properties.  For those 5 years, I reported my contracting income/expenses on my schedule C and our rental income/expenses on schedule E. 

I have recently decided - thanks in large part to bigger pockets forums & podcasts - to focus 100% of my time on our real estate portfolio — managing, maintaining, and purchasing more to reach our goals.  I no longer plan on taking any jobs for clients outside of this.

My question comes in regards to how I should set up my bookkeeping and plans for the upcoming year — since I don’t plan on receiving any outside income through my contracting business and my full-time job wil be real estate, would it make more sense to shift my rental income/expenses to a schedule C business? I understand that it would then be subject to the self-employment tax...   I have trucks/tools/supplies etc that I have been including as expenses on my contracting business in the past, but considering that I don’t expect to be reporting any business income, if I filed taxes the way I have been I don’t think the IRS would see my business as operating to produce a profit. 

Just for info, all of our properties are currently held in our own name and my contracting business is under and LLC. Holding the properties in an LLC vs. personal is another decision I will be making but not necessarily the focus of this post.

Any thoughts greatly appreciated.  Thank you!

 You willl always report your rental activity in the schedule E. 

It doesn’t matter if you are doing full time. Rental income is always passive income and never subject to SE tax even if you materially participate.

If you are completely shutting off your schedule C business, than you would not report anything in schedule C. But if you are incurring expenses to wind off the remainfjng jobs, you should report it even if there is a loss. That’s is actuall good for you, it will lower your taxes.