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? 

[Andrew Myers]

Hi Ashley! Definitely check with a CPA who understands STR/vacation rentals, but we do everything via Schedule E (as advised by my CPA). Schedule C, I think, would be more if this is your full-time gig aka if this were a full-time AirBnb manager for yourself or others. If you have a full-time job and this is your side gig, I would say Schedule E. But def engage with a CPA who knows this stuff!

[Angel R.]

This will go under Schedule E, if it was a business then Schedule C applies

[Natalie Kolodij]

Air BNB only goes on Schedule C if it's both under 7 days average AND you're providing substantial services like a hotel (meals, daily cleaning, room service)

[Luke Carl]

Every accountant will have different beliefs on this subject. It’s my belief that if you’re not cooking them breakfast every day you’re good to go with schedule E. Then big difference of course is schedule C is self employment which will cost you more. There are literally hundreds of threads on this subject right here on the forum. 

[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

[Ashley Rothacker]

Hi Lucas! I tried searching but it seems to be down at the moment which is why I figured I'd ask. I'd definitely prefer to not be subject to SE tax if possible but wanted to make sure I do it right since this is my first return with STRs. 

[Angel R.]

Originally posted by @Ashley Rothacker:

Hi Lucas! I tried searching but it seems to be down at the moment which is why I figured I'd ask. I'd definitely prefer to not be subject to SE tax if possible but wanted to make sure I do it right since this is my first return with STRs. 

Schedule E is used to report “passive” income, an income where you receive money, but not work for or earn them. Schedule C is used to report “active” self-employment business income (cooking, cleaning service…etc.)
Where are you located? Do you have full-time employees managing this property? Are you paying the cleaning off the books? If this is not your full-time gig or being treated as a business then it's Schedule E which is good for you! No self-employment tax and it shouldn't be if it's not a job.

[Ashley Rothacker]

Originally posted by @Angel R.:

Where are you located? Do you have full-time employees managing this property? Are you paying the cleaning off the books? If this is not your full-time gig or being treated as a business then it's Schedule E which is good for you! No self-employment tax and it shouldn't be if it's not a job.

We actually don't live in the city where we own the two STRs, but are only 1.5 hour drive away. We manage them ourselves such as communicating with guests, adjusting reservations, setting up entry codes, ordering supplies, and scheduling any repairs/maintenance needed. We don't have any formal employees but do have a local cleaner that takes care of all the turnovers. I do have a long term rental with a property manager so that is definitely passive income whereas managing these STRs in my mind is active...hence my struggle with the schedule e vs c debate :) 

eems m

[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.

[Michael Baum]

@Natalie Kolodij is awesome. :)

Our CPA has us using a Schedule E. For the reasons Natalie listed above!

[Ashley Rothacker]

Originally posted by @Natalie Kolodij:

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.

Thank you Natalie! I've been going in circles on this so thank you for clearing this up for me!

[Natalie Kolodij]

Originally posted by @Michael Baum:

@Natalie Kolodij is awesome. :)

Our CPA has us using a Schedule E. For the reasons Natalie listed above!

YOU'RE Awesome

[John Underwood]

VRBO/Airbnb goes on schedule E unless you are providing substantial services.

If you are not providing the guest daily services you are not likely to meet the "providing substantial services test."

[Steven Hamilton II]

It will go on schedule E and is listed as non passive therefore it will offset other income.  Natalie is entirely correct.

[Ashley Rothacker]

Thank you everyone! 

[Brian Poppleton]

Originally posted by @Natalie Kolodij:

Air BNB only goes on Schedule C if it's both under 7 days average AND you're providing substantial services like a hotel (meals, daily cleaning, room service)

Hello Natalie, thanks for the info.  If someone does qualify to report their vacation rental on Sch C, could they use a cost segregation to wipe out other active income and not be a real estate professional?  if so it could make providing substantial services worth while.  

[Steven Hamilton II]

Originally posted by @Brian Poppleton:

Originally posted by @Natalie Kolodij:

Air BNB only goes on Schedule C if it's both under 7 days average AND you're providing substantial services like a hotel (meals, daily cleaning, room service)

Hello Natalie, thanks for the info.  If someone does qualify to report their vacation rental on Sch C, could they use a cost segregation to wipe out other active income and not be a real estate professional?  if so it could make providing substantial services worth while.  

Hi Brian,

Actually, the income may not need to be on a Schedule C to offset other income. If the average length of tenancy is 7 nights or less it is considered non-passive. In that situation it is reported on Schedule E it may offset other income as it is not subject to the passive activity loss limitations. 

[Brian Poppleton]

Thanks Steven.  That could be a good planning opportunity for the right person.  

[Steven Hamilton II]

Originally posted by @Brian Poppleton:

Thanks Steven.  That could be a good planning opportunity for the right person.  

 Only if it is planned to fit the requirements of the code. You have to learn and understand the tax code and the consequences of a misstep. 

[Lonzo Seebe]

I hate to dredge up an old post but what hotels do y'all stay in that provide meals, daily cleanings, and room service?  

[John Underwood]

Originally posted by @Lonzo Seebe:

I hate to dredge up an old post but what hotels do y'all stay in that provide meals, daily cleanings, and room service?  

All of them.

[Lonzo Seebe]

Originally posted by @John Underwood:

Originally posted by @Lonzo Seebe:

I hate to dredge up an old post but what hotels do y'all stay in that provide meals, daily cleanings, and room service?  

All of them.

 
Hmm.  I must be a poor then because I never saw meals and room service at Motel 6.