Short Term Rental Schedule C vs E

[Luis Lizardo]

We are closing on a property on Pigeon Forge, TN which will be used as a short term rental. The total use of property will be for <7 days on average, however we will not be providing substantial services to the guests ( for example, daily cleaning/cooking breakfast, maid, touring, picking from airport, etc.). However, we will be involved in the day-to-day functioning of the rental by arranging bookings, answering inquiries, furnishing cabin, repairing cabin, among other activities related to the cabin. 

1. When it comes to filing, which Schedule should be used (Schedule C or Schedule E)? Since we are not providing services similar to a hotel, we believe schedule E is the answer but needed clarification in regards to your interpretation of what constitutes "substantial services".

2. If one of the 7 tests of material participation hours are met and if losses are documented on Schedule E for that tax year. Can these losses (which would be deemed "non passive") be used to offset W2 incomes (non passive)?

Thanks

[Michael Plaks]

@Luis Lizardo

Thumbs up - pretty good grasp of the tax concepts to ask this question!

My answer is tentative, because I do not have a complete picture of everything going on. If we had an in-depth discussion, maybe my answer would've changed. But for now:

- Schedule E

- losses can offset W2 income

Warning: it might be very difficult to make your DIY tax software behave the way I described.

And circling back to my disclaimer: before treating it this way, I would invest in a professional opinion which involves a thorough discussion of this property and your overall tax/financial situation.