Short Term Rental Tax Question - Schedule C versus Schedule E

[Theresa McGallicher]

I have researched this topic extensively on Bigger Pockets and elsewhere and I am still struggling to understand the tax code. 

I have a STR property that went into service in Jan 2022. I met the Material Participation requirements that year, and took our taxes to our preparer with the expectation of a refund. She filed our STR on Schedule E, and we owed $7000 to the IRS, because the rental income was added to our W-2 income, which was over $150,000. We were told that none of our real estate losses could be deducted.

After we paid, I reached out to another STR owner who recommend her tax preparer. The new CPA amended our 2022 taxes and filed our STR on Schedule C, so we recieved a refund of $6000.

Now we are preparing to file for 2023, and I was told by some STR gurus, and also read on here, that we should not be using Schedule C since we are not providing daily hospitality services. However, I don't see how filing with Schedule E can be benficial due to the Passive Activity Loss Rules.

What am I missing here?

[Michael Baum]

Hey @Theresa McGallicher, so try not to spend too much time listening to random people on the internet. Everyone has opinions but some are not based in reality.

If you are not providing significant services, like daily cleaning, on site chef for meals, custom tours etc. you should be filing on a schedule E.

https://theshorttermshop.com/is-short-term-rental-schedule-e... Take a look at @Avery Carls blog post about the differences.

The bottom line is to work with a CPA who is knowledgeable about these rules. Preferably one who is an investor as well. They will know the rules and regs and get you filed correctly.