USA 3 Rentals+ - Schedule E or C ?

[catradingllc15]

Hi. Any assistance would be very welcome.

As the title says, I have 3 properties that are rentals and one of the properties also does AirBNB short term guest rental. The tax program I use keeps limiting my losses when I prepare the Sch E. Since, in my opinion, it is clear that I own these properties as a side business, it seems I should or could be placing these rental transactions on a Sch C; thereby, realizing all losses. But if I use Sch C, then I think I will run into the 5 year limit on recognizing losses. Yes, I do spend more than 750 hours managing all 3 properties. I also have a W2, along with an unrelated Sch C (not rental) income. Once again, the problem I am having is the tax program I am using is limiting the rental loss...so I cannot offset my other income.

Do I prepare Sch C or Sch E ?

 

[BIG E]

It depends.
What is a material factor is whether or not you provide services along with the rental in addition to simply renting the space.
There is a restriction on the losses due to the fact that rental real estate is considered a passive activity regardless of how much material participation you are involved with in operating the investment property. It's also based on what your other income is that determines the loss restriction. I suggest you read up on the passive activity rules relating to rental activities. Then you can decide whether or not to blame the software.

 

[catradingllc15]

Nice, thank you for the good advice.

I can definitely make a good argument that I also provide a service, too. I just don't know if I should take the loss now (by filing Sch C) and then apply that loss to a future sale, if a sale ever happens...or take defer that loss to the future by filing Sch E.

As we all know, when it comes to taxes, our basic instinct is what can I get 'now', not what can I get in the 'future'. So do I Sch E or Sch C is the question I keep asking myself.

 

[BIG E]

Keep asking yourself.
There are risks and benefits from either choice you make.
Either you comply with the tax law or you don't.
IRS has structured tax laws for compliance purposes with restrictions on simply claiming a tax alternative merely for convenience without substantiating proof of evidence to support your claim. So do as you wish - keep asking yourself what to do - if you have doubt - contact a licensed tax professional.

 

[catradingllc15]

Thank you again for your reply.

You have told me exactly what I wanted to hear. Basically, that I can choose which schedule to file, as long as I have the evidence to base my claim.

Thanks again.