Schedule E or Schedule C

5 Replies

BP,

Lots of ambiguous info out there regarding these tax matters (to be expected). If I have 6 rental properties, all under a single-member LLC, is it worth exploring the option of listing income on schedule C and treating it like the intended business it's supposed to be, rather than on Schedule E? I feel like I'd be able to have significantly higher deductions if income were listed under Schedule C for my business rather than on Schedule E, passive income. As I'm transitioning out of the Army, I've spent most of my time pursuing my RE activities that technically qualifies me as a "RE Professional" based on the IRS requirements. Is it worth paying the additional Self-Employment Taxes (keep in mind that my deductions will be higher under schedule C, hence will be showing less taxable income).

I ask this because I have several Business expenses that are not directly tied to any one property or tools/assets that are used for numerous properties (i.e. table saw, Utility Trailer, Simplisafe Unit, etc). This also includes my LLC origination fee, tax prep fees, meal expenses, etc.

To my understanding, the following are NOT deductible under Schedule E income (please correct me if I'm wrong):

  • Business Meals
  • Home Office Deduction (% of mortgage, utilities, etc)
  • Miles driven looking for new properties or meeting agents/clients
  • Cell phone expenses
  • Travel expenses to/from business trips
  • Bank fees

Can someone chime in on this topic?

Navid - the CPA's in here will chine in but my understanding is schedule C is for if you provide substantial services. This level of services almost take you to the point of running a hotel or boarding house. I have LLC's that all come back to me so I just do schedule E's.

Originally posted by @Mark H. Porter :

Navid - the CPA's in here will chine in but my understanding is schedule C is for if you provide substantial services. This level of services almost take you to the point of running a hotel or boarding house. I have LLC's that all come back to me so I just do schedule E's.

Out of curiosity, how do you claim your home office deduction? I haven't seen a way to directly deduct a home office on a schedule E. 

@Navid A.


You don't have the option of listing items on schedule C or Schedule E as to whatever benefits you greater. Reports your activity on the form that is belongs on.

There are also a lot of incorrect myths in your post.

SE Tax and Rental income?
Certain deductions that can't be claimed on schedule E?

Navid, I don’t do the home office deduction.  I work from home full time in my regular job and it’s really a spare bedroom.  It’s not worth opening it up to scrutiny.

@Navid A.

You are mixing up active business and passive investments. The former requires you to be actively in a business or trade. In general, if you aren’t making money or aren’t trying hard enough (yeah, that’s the technical phrase...) after some years, theN the irs will categorize your business or trade as a hobby and disallow your attempted deductions.

Passive investments, such as rentals, go on SchE. Because they are passive, regardless of materiel participation or active real estate professional status (none of these change the nature of the income generation), you only have the schE deductions. The other stuff you listed are related to an active business or trade.