Can an LLC report one rental on Schedule C and the other on Schedule E?

Question

I hold two properties in an LLC, one property is currently a STR with less than 7 night rental on average and I provide hotel-like hospitality services and materially participate. I just acquired it and would like to report this property on Schedule C to deduct the loss of first year operations and expenses against my other Sch C business(es) and my husband's W2. The plan is to cease the STR next year and switch to a MTR and thus, I would then report that property on Schedule E.

My other property, which was also recently acquired, is already a MTR, and I would need to report it on Schedule E.

So my question is: can I report one property on SCH E and the other on SCH C even though they are both owned by one LLC? I do my own book-keeping and taxes, so don't have a CPA to consult.

Thanks for any advice!

David Orr · Answer

A single member LLC is disregarded for tax purposes, so the LLC doesn't make any difference.

It sounds like you might already be aware of this, but the only time you can put a rental property on a Schedule C is if you provide those "hotel-like hospitality services" that you mentioned, which means things like not just cleaning between guests, but daily cleanings during guest stays, and/or providing them with things like meals or entertainment during their stay. You also mentioned that it's an STR with an average stay of less than 7 days, but that's not a factor on whether it goes on Schedule C.

But just so you're aware, providing hotel-like services so you can put it on Schedule C isn't the only way your rental losses can offset your other Schedule C businesses and your husband's W-2. You can also do that by just having an STR with an average stay of 7 days or less and material participation, without needing to provide hotel-like services. If you do that, it goes on Schedule E like a regular rental, but the difference is that the tax loss isn't limited by the passive activity rules on form 8582. Most professional tax software programs have an option to specify that rental income is non-passive, and that will cause the Schedule E tax loss for that activity to bypass form 8582. There is also a way to do that with TurboTax desktop (but not the online version). In that one, you can go into the forms mode on the Schedule E worksheet, then check the boxes "G - Other passive exceptions" and "D - Material Participation".

By the way, if the average stay for the year is 30 days or less, you have to depreciate the property over 39 years instead of 27.5. It can change from year to year depending on the average stay length for the year.

It may be a good idea to at least have a tax profession review your tax return to see if there may be any significant mistakes, or opportunities that you may be not aware of.

David OrrTax Modern

John Underwood · Answer

You should definitely have a CPA to advise you and professionally do your taxes.

Account Closed · Answer

The answer is yes: You can report one asset on SCH-C and one on SCH-E, though I would strongly recommend hiring an accountant to do it for you at this point. We get all sorts of clients who waited to long to work with a professional and have all sorts of problems. Not to say that is you!

Anna Nevarez · Answer

Thanks Everyone, for your input! Much appreciated.

@David Orr thanks so much for your detailed reply. This is all well-understood and makes perfect sense.

Basit Siddiqi · Answer

A single member LLC is considered disregarded for tax purposes.

Therefore, it is as if you own the property directly.
If an activity should be reported on schedule E, then report it on schedule E
If an activity should be reported on schedule C, then report it on schedule C.

JD Martin · Answer

I can't think of any reason why you would do this. If you truly qualify as a RE professional you would want to do everything on Schedule C. You really need to be sure you actually meet all of the participation requirements; the most likely scenario is that you really need to be using E for your properties. The other thing is switching schedules on a property is a good way to get flagged for an audit. In any case, yes you want to run this past a good RE CPA.

Michael Plaks · Answer

@Anna Nevarez

To add to the excellent answer by @David Orr:

- Even though you claimed that you provide "hotel-like services" - I'm not sure that you do. It's worth discussing with a tax professional. At least, read carefully David's clarification on what it means.

- You may think that you must qualify for Sch C in order to claim losses. As David explained, it's not required.

- You mentioned your plan of running it as an STR for one year only. This is a potentially risky plan which may end up being challenged by the IRS. Also worth discussing with a tax pro.

Sean O'Keefe · Answer

@Basit Siddiqi getting straight to the point :)

Max Ferguson · Answer

Yep, not a time to ask the forum. Go offer a cpa $50 for a 15 min consultation if you like to do it yourself. I would guess this situation calls for two separate LLC's but no clue. Better to spend a little here than commit tax fraud. Good luck and let us know what you decide!

Can an LLC report one rental on Schedule C and the other on Schedule E?

Can an LLC report one rental on Schedule C and the other on Schedule E?

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