Schedule C for Airbnb Income

[Ashley Rothacker]

Hello! I know there are a lot of topics on whether to report Airbnb income on schedule e or c but it still seems like a grey area still. Most resources say Schedule E however other resources say that if the average rental duration is less than 7 days then you need to report on Schedule C. We have two Airbnbs that we manage ourselves, but have a cleaner than does the turnover. Wouldn't this be considered more non-passive activity then (manage bookings, communicate with guests, order supplies, upkeep of properties) and need to be reported on Schedule C? 

[Natalie Kolodij]

Originally posted by @Ashley Rothacker:

Hey all! Thanks for the feedback. We definitely aren't providing "substantial services" but I read a few articles that claimed the IRS automatically considers it a business if the average rental is under 7 days (whether or not you provide substantial services). See article below. Can you still be considered a business and file under Schedule E then?

https://www.biggerpockets.com/blog/2015-07-05-tax-impact-airbnb-short-term-rentalsinvestors

A long term rental can be 100% passive and considered  a business and still reported on Schedule E. 

There are various sections of the tax code that determine these things. 

162 and 469 are what come into play here. You can absolutely be a business and on E. Again, until you cross that substantial services threshold you stay on E and not subject to SE tax. 

I think the author misunderstood the IRC in that article. He admitted to misunderstanding a reg on an article a couple of years ago I'm not sure if it was this one. 

You can be on E as and be Non-Passive. A RE pro's rental activities are non-passive and they are still allowed to be reported on E. There is more to it with ST rentals involving material participating rules as well, but until there is substantial services they should remain on E. Applying the passive/nonpassive treatment of irc 469. If you move to C you're subjecting to SE tax.