Short Term Rental Tax Question - Schedule C versus Schedule E

[Theresa McGallicher]

I have researched this topic extensively on Bigger Pockets and elsewhere and I am still struggling to understand the tax code. 

I have a STR property that went into service in Jan 2022. I met the Material Participation requirements that year, and took our taxes to our preparer with the expectation of a refund. She filed our STR on Schedule E, and we owed $7000 to the IRS, because the rental income was added to our W-2 income, which was over $150,000. We were told that none of our real estate losses could be deducted.

After we paid, I reached out to another STR owner who recommend her tax preparer. The new CPA amended our 2022 taxes and filed our STR on Schedule C, so we recieved a refund of $6000.

Now we are preparing to file for 2023, and I was told by some STR gurus, and also read on here, that we should not be using Schedule C since we are not providing daily hospitality services. However, I don't see how filing with Schedule E can be benficial due to the Passive Activity Loss Rules.

What am I missing here?