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The Best Way to Own That Palatial Rental Property!
Do you have a palatial ski home or beachfront property you rent out?
If so, you likely have a choice — either
- claim the income and expenses on Schedule C, or
2. claim the income and expenses on Schedule E.
When Is Schedule C a Good Choice?
If you show a tax loss on your rental property, Schedule C is a great choice because it allows you to deduct your rental losses against all other income (assuming you materially participate in the rental property, as discussed later).
If you show taxable income on the rental property, Schedule C is not good because it causes you to pay self-employment taxes.
When Is Schedule E a Good Choice?
If you show taxable income on the transient rental, Schedule E is best because you don’t pay any self-employment taxes on Schedule E income.
If you show a loss on your transient rental and you materially participate, you can deduct your losses against all other income, but those Schedule E losses do not reduce self-employment income.
Okay, now you know how to play the game.
Controlling Regulation
IRS Reg. Section 1402(a)-4(c)(2) states:1
Services rendered for occupants. Payments for the use or occupancy of rooms or other space where services…
