REPS rental income on Schedule C with self employment taxes???

Question

My accountant doesn't seem to fully understand REPS, which I qualify for.  She's telling me if I file as a REP, I would need to report rental profits/losses on Schedule C instead of the usual Schedule E and pay the the extra self employment taxes.  She says she can show me the tax code, but I didn't want to argue.  Is she correct, or should I find a new accountant?

Michael Plaks · Answer

She is incorrect on two separate issues.

1. Schedule C vs E. Rental properties go on Schedule E, with or without REPS. REPS only changes whether the resulting loss is deductible, not the schedule. All you have to do to verify this is to read the IRS instructions for Schedule E, page E-4 or the IRS Publication 925, page 8.

I can think of two possible reasons for your accountant to incorrectly insist on Schedule C:
a. She may not know how to make Schedule E losses deductible in her software, because by default tax software would block such losses. One needs to know how to force this unusual treatment of losses.
b. A few years ago one of the IRS Publications did, in fact, state that REPS was to be reported on Schedule C. I don't remember where exactly I saw that incorrect statement contradicting their own guidance elsewhere. Hopefully it has been corrected since.

2. Self-employment tax is irrelevant either way. If you have REPS, you must have net losses. Net losses from a business result in zero self-employment tax even for non-rental businesses that are reported on Schedule C. For example, a restaurant losing money.

Ashish Acharya · Answer

@Greg Seivert You're absolutely right to question that advice.

Just because you qualify as a Real Estate Professional (REPS) under IRC §469(c)(7) does not mean your rental income shifts to Schedule C, and it does not trigger self-employment (SE) tax.

Rental income, even when you're a REPis still reported on Schedule E, unless you're:

• Providing substantial services (e.g., cleaning, concierge, hotel-like operations), or
• Running a business like flipping or wholesaling

REPS simply allows rental losses to be treated as non-passive, so they can offset other income like W-2 or business profits. It doesn’t change the nature of rental income for self-employment tax purposes.

If your accountant is insisting that being a REP means filing rental income on Schedule C and paying SE tax, that’s a misinterpretation of the tax code. You might consider getting a second opinion from a CPA who specializes in real estate investing, especially one who understands REPS, STRs, and passive activity grouping rules.This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

Jhonny Remy · Answer

Qualifying as a Real Estate Professional (REP) does not mean rental income or losses must be reported on Schedule C. It simply means that, for tax purposes, your rental activity is not considered passive, so you can use losses to offset other active income.

Unless you’re providing substantial services (like in a hotel or short-term rental scenario), your rental activity remains a Schedule E activity and is not subject to self-employment tax.

If you're truly REP-qualified and materially participate in your rental activities, you can legitimately deduct your real estate losses against ordinary income.

If your accountant insists on reporting rental income on Schedule C and says REP status requires it—yes, it may be time to find someone more experienced in real estate taxation.

Aaron Zimmerman · Answer

@Greg Seivert - do you have a time log? It is Very important for REPs status. Not all hours may count towards REPS status so it's best to check with your accountant with what hours count and which don't.

@Michael Plaks - great explanations as always!

Basit Siddiqi · Answer

The rentals should still be listed under Schedule E unless you are providing more than just a rental(Substantial services such as concierge services).You may want to interview a couple of accountants as this decision of schedule C vs Schedule E can make your return deemed incorrect and increase the chance of an audit.

Sean O'Keefe · Answer

Some good insights from @Dylan Brown and @Michael Plaks

@Greg Seivert Curious if you're also earning REPS hours on other activities beyond just your rental properties?

Also, keep in mind that hours spent on STRs don't count toward REPS and to leverage losses from rentals against non-passive income with REPS you still need to be actively participating in each property or group them.

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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

Dylan Brown · Answer

Thanks @Michael Plaks for putting it in simpler terms - in hindsight, citing code is probably not as helpful as pointing to more practical resources like instructions and publications.  Great post as always!

REPS rental income on Schedule C with self employment taxes???

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