Home Office Deduction and STR on Schedule E only vs. Sch. C

[Alex Forest]

I have a couple questions I'd like to run by this group. I self manage more than a handful (except one) of several long term rentals (LTR) and just acquired a STR in December of 2025 (first of this type) that we will be self managing also. We also built an addition onto our primary home in 2025, a portion of which has a dedicated space for a home office. This is in relation to the various tax implications and benefits of STR and the new OBBBill. While I have self prepared taxes via Turbo Tax for years and studied IRS pubs to a certain degree for LTR, I decided to reach out to a CPA this year for another set of eyes and better expertise with these potential implications/events occurring in 2025. I believe both CPAs are quite competent, smart and seasoned/experienced. I respect them both. But am a bit confounded about the varying advice, including to my own reading.

1. 1.) STR: The 7 day rule and “100 hours of material participation”

1. The 100 hour rule: You participate for more than 100 hours, and no other individual (including cleaners or property managers) spends more time on the activity than you.

The STR closed mid December 2025. Pro-rating the 100 hours for the year, would yield 21 hours, easily met. As a result of the above, my understanding is this allows it to be considered a "non-passive business" or active income without needing to be classified as a real estate professional. We plan to self manage in 2026 also and so this would not change.

The Accountant I am working with agrees that this “is the correct technical reading of Section 469 of the Code“, however in past client audits with the IRS, the IRS sought to verify a 500 hour participation standard. I would not meet that. This would tip it from a Schedule C (active) to Schedule E (passive).

NOTE: There are enough profits from other LTR, that the anticipated near term losses from the STR could offset some of these and not go so far as to offset W2 income. I also considered 100% bonus deprecation from cost seg, but the purchase price was not terribly high and this would also simply be taking from future depreciation, so I would likely not do it for this one. So, in this sense, no harm, no foul if no other implications and they all fall to an E. This would group the STR with the LTR all on a Schedule E (passive income), with no Schedule C (active income or business).

1. 2.) Home office Deduction: My reading is that it must be an “active trade or business” activity. Which for rental properties may not qualify with a property manager. It may also qualify though for rental properties if actively managed with decisions made about the management of the property and if 250 hours of material participation from ‘property management’ activities are met. Which I would meet through self management and active decisions with LTR, leading to the feasibility of the office deduction.

The Accountant indicated that unfortunately this is not possible since there would not be a Schedule C or certain K-1s, which is needed for the home office deduction. I have searched online and on this BP forum a decent amount. What I finally came to was, though it was a bit vague and non-determinate, was that an Office deduction could indeed be taken if a Schedule E only, it just needed to be entered as “other expense” manually or something similar to this effect. I do spend a decent amount of time on these activities, and with a new construction in 2025 (~$75,000 attributable to dedicated office space), there could be a sizeable full 100% expense and offset all of a sudden. I’ve also played with Turbo Tax a bit and it too seems to direct you to first enter Schedule C type of self employment business income/activity before allowing you to enter a home office deduction.

If the implication of #1 only was to have it all on a Schedule E, I don’t see a substantive impact or concern. However, the inability for #2, I do see a substantive impact for 2025. Are there any other implications of having ALL these activities on a Schedule E only versus a Schedule E and C?

I noted the advice of one Accountant above, who is very experienced, knowledgeable, and whom I respect. The other is also from a reputable firm (albeit a shorter consultation), however their advice was that it could all be taken (and more).

Are these just different risk profiles that Accountants take with their interpretations of the same language? And what are the answers to #1 and #2? I’m left a bit confused by the varying advice.

[Michael Plaks]

Quote from @Alex Forest:

I have a couple questions I'd like to run by this group. I self manage more than a handful (except one) of several long term rentals (LTR) and just acquired a STR in December of 2025 (first of this type) that we will be self managing also. We also built an addition onto our primary home in 2025, a portion of which has a dedicated space for a home office. This is in relation to the various tax implications and benefits of STR and the new OBBBill. While I have self prepared taxes via Turbo Tax for years and studied IRS pubs to a certain degree for LTR, I decided to reach out to a CPA this year for another set of eyes and better expertise with these potential implications/events occurring in 2025. I believe both CPAs are quite competent, smart and seasoned/experienced. I respect them both. But am a bit confounded about the varying advice, including to my own reading.

1. 1.) STR: The 7 day rule and “100 hours of material participation”

1. The 100 hour rule: You participate for more than 100 hours, and no other individual (including cleaners or property managers) spends more time on the activity than you.

The STR closed mid December 2025. Pro-rating the 100 hours for the year, would yield 21 hours, easily met. As a result of the above, my understanding is this allows it to be considered a "non-passive business" or active income without needing to be classified as a real estate professional. We plan to self manage in 2026 also and so this would not change.

The Accountant I am working with agrees that this “is the correct technical reading of Section 469 of the Code“, however in past client audits with the IRS, the IRS sought to verify a 500 hour participation standard. I would not meet that. This would tip it from a Schedule C (active) to Schedule E (passive).

NOTE: There are enough profits from other LTR, that the anticipated near term losses from the STR could offset some of these and not go so far as to offset W2 income. I also considered 100% bonus deprecation from cost seg, but the purchase price was not terribly high and this would also simply be taking from future depreciation, so I would likely not do it for this one. So, in this sense, no harm, no foul if no other implications and they all fall to an E. This would group the STR with the LTR all on a Schedule E (passive income), with no Schedule C (active income or business).

1. 2.) Home office Deduction: My reading is that it must be an “active trade or business” activity. Which for rental properties may not qualify with a property manager. It may also qualify though for rental properties if actively managed with decisions made about the management of the property and if 250 hours of material participation from ‘property management’ activities are met. Which I would meet through self management and active decisions with LTR, leading to the feasibility of the office deduction.

The Accountant indicated that unfortunately this is not possible since there would not be a Schedule C or certain K-1s, which is needed for the home office deduction. I have searched online and on this BP forum a decent amount. What I finally came to was, though it was a bit vague and non-determinate, was that an Office deduction could indeed be taken if a Schedule E only, it just needed to be entered as “other expense” manually or something similar to this effect. I do spend a decent amount of time on these activities, and with a new construction in 2025 (~$75,000 attributable to dedicated office space), there could be a sizeable full 100% expense and offset all of a sudden. I’ve also played with Turbo Tax a bit and it too seems to direct you to first enter Schedule C type of self employment business income/activity before allowing you to enter a home office deduction.

If the implication of #1 only was to have it all on a Schedule E, I don’t see a substantive impact or concern. However, the inability for #2, I do see a substantive impact for 2025. Are there any other implications of having ALL these activities on a Schedule E only versus a Schedule E and C?

I noted the advice of one Accountant above, who is very experienced, knowledgeable, and whom I respect. The other is also from a reputable firm (albeit a shorter consultation), however their advice was that it could all be taken (and more).

Are these just different risk profiles that Accountants take with their interpretations of the same language? And what are the answers to #1 and #2? I’m left a bit confused by the varying advice.

So, you paid two CPAs for consultations, and now you want a 3rd consultation from us, and for free?  :)

To your #1. Your pro-ration calculation from 100 hrs to 21 hrs does not math for me. But more importantly, there is NO proration. You need 100 hours during 2025.

To your #2. Yes, you could claim HO on Sch E if you pass all qualifications. TurboTax will not do it however, it is a manual entry. More importantly, HO deduction cannot increase or create a loss for the current year. It can only offset your net positive income. 

But there is a lot of details to all this, and you need to either settle on one of the two CPAs you already connected with or find a third one.