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Updated over 3 years ago on . Most recent reply

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David C.
  • Investor
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Schedule C or Schedule E ? Pros - Cons

David C.
  • Investor
Posted

I have read sources/watched videos, etc. regarding reporting rental income on your Schedule C vs. Schedule E.  Each source comments on why one may be better or the other.  Frankly, it seems like depending upon the source, you will get a different answer rather than getting clear cut scenarios explaining the "why's" for each.

My main questions are as follows:

1) In general - What are the pros/cons related to reporting rental income on your schedule C vs. schedule E ?

2) Is it more beneficial to report your rental income on a schedule E, since this prevents S.E. tax, or is it better to report this on a schedule C, since there are no limitations to your deductions ?

3) Spending 750 hours yearly related to your rental business/real estate investing qualifies you as a real estate professional.  Sources I have read state that this then allows you to report your rental income on a Schedule C.  That being said, does this mean that you MUST report your rental income on your schedule C, or can you still elect to report on your schedule E ?

4) The IRS website states, "If you provide substantial services that are primarily for your tenant's convenience, report your income and expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship)."  So if you are actively managing your own properties(substantial services), I would think that you would report your rental income on a schedule C.  Correct or incorrect?

Thanks,

Dave

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Ashish Acharya
Tax & Financial Services
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#2 Tax, SDIRAs & Cost Segregation Contributor
  • CPA, CFP®, PFS
  • Florida
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Ashish Acharya
Tax & Financial Services
Pro Member
#2 Tax, SDIRAs & Cost Segregation Contributor
  • CPA, CFP®, PFS
  • Florida
Replied

@David C.

Good Questions. Please see below. 

1) In general - What are the pros/cons related to reporting rental income on your Schedule C vs. schedule E ? -  It's not a choice. You are required to report your rentals in Sch E. If we are talking about your STRs, then yes you could report the STRs in Sch C depending on if your activity is subject to SE taxes. 


2) Is it more beneficial to report your rental income on a schedule E, since this prevents S.E. tax, or is it better to report this on a schedule C, since there are no limitations to your deductions ? - It's not a choice. You are required to report your rentals in Sch E.


3) Spending 750 hours yearly related to your rental business/real estate investing qualifies you as a real estate professional. Sources I have read state that this then allows you to report your rental income on a Schedule C. That being said, does this mean that you MUST report your rental income on your schedule C, or can you still elect to report on your schedule E ? - Even if you are a real estate professional, you are required to report your activities in Sch E. The status only changes your losses from passive to non-passive. The income is still not an earned income for retirement plan contributions.  

4) The IRS website states, "If you provide substantial services that are primarily for your tenant's convenience, report your income and expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship)." So if you are actively managing your own properties(substantial services), I would think that you would report your rental income on a schedule C. Correct or incorrect? - No, this is more geared toward hotels/STRs/Bed and Breakfast establishments. 

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